Container ships are seen at the port in Tokyo.
Ratings agency Standard & Poor's Wednesday cut its outlook on Japan's sovereign debt following last month's quake-tsunami
disaster and warned that reconstruction costs could pass $600 billion.
It said, however, that the March 11 disaster, which obliterated whole towns on the northeast coast, left 26,000 people dead or missing and triggered a nuclear crisis, would not hurt Japan's medium-term growth potential.
The credit ratings agency said the cost of rebuilding could range from 20 trillion yen to 50 trillion yen ($245 billion to $612 billion).
It said 30 trillion yen was its central forecast, if there are no measures to boost revenue, such as tax increases.
"Although we do not expect the disasters to materially hurt the country?s medium-term growth potential," Standard & Poor's said it forecast that the calamity would increase Japan's fiscal deficit.
"Standard & Poor's expects costs related to the March 11, 2011 earthquake, tsunami and nuclear power plant disaster will increase Japan's fiscal deficits above prior estimates by a cumulative 3.7 percent of GDP through 2013," it said in a statement.
The government last month estimated the cost of twin tragedy could hit 25 trillion yen - double the 1995 Kobe quake - even without accounting for wider issues such as radiation from the stricken Fukushima nuclear plant.
After cutting the outlook on its debt rating to negative from stable, S&P forecast Japan's deficit would rise to 145 percent of GDP in the financial year ending March 31, 2014, compared with its previous forecast of 137 percent.
"The negative outlook (on the long-term rating) signals that a downgrade is possible if Japan?s public finances weaken further over the next two years in the absence of fiscal consolidation to offset them.
"We believe that uncertainty over the country's fiscal and economic outlook will lessen over the next six to 24 months."
The ratings agency affirmed its long-term sovereign credit rating at "AA-".
S&P's announcement comes as Japan struggles with the industrialised world's biggest debt, at around 200 percent of GDP, after years of pump-priming measures by governments trying in vain to arrest the economy's long decline.
"If the government's debt trajectory remains on its current course or begins to erode the nation's external position, the long- and short-term ratings could be lowered," the ratings agency said.
Standard & Poor's warned that its projections were "uncertain" due to ongoing developments at the Fukushima nuclear power plant, where workers are battling to cool reactors and spent fuel rod pools to prevent a meltdown.
"Much will depend on Japan?s political leadership and its ability to forge a political consensus on how to offset fiscal measures in the future," it said.
"The extent of environmental contamination in northeastern Japan remains unknown."
The nuclear disaster, the world's worst since Chernobyl 25 years ago, caused electricity shortages while the quake and tsunami damaged and destroyed production facilities and infrastructure, disrupting supply chains.
"Although we expect no lasting damage to Japan?s supply chains, some manufacturers could decide to move a greater share of production offshore," the ratings agency said.
"Combined with the headwinds of intermittent deflation and a fast-ageing population, Japan will be challenged to raise its real GDP growth potential much above one percent annually over the medium term, in our view."
It said, however, that Japan's sovereign ratings were supported by its ample net external assets, relatively strong financial system and diversified economy.
"Japan is the world's largest net external creditor in absolute terms, with projected net assets of an estimated 322 percent of current account receipts at year end 2010.
"The country's current gold and foreign exchange reserves of over US$1 trillion are second only to China's."
Standard & Poor's said Japan's financial system appeared sound following years of restructuring.