Japan Credit Rating Agency, Ltd.

July 14, 2003

Re: Rating Agencies and the Use of Credit Ratings
Under the Federal Securities Laws
File No. S7-12-03

Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609

Dear Mr. Katz,

We are pleased to submit our answers to your questions contained in the Release Nos. 33-8236; 34-47972; IC-26066 (the "Release").

Very truly yours,

Takashi Kanasaki
Managing Director



A. Alternatives to the NRSRO Designation

Questions (1) through (10)

As they are presumed to be U.S. domestic matters, we decline to make comments.

B. Recognition Criteria

Question (11)

Not appropriate. They are not sufficiently transparent and, more importantly, not effective in preventing the rating agencies from anti-competitive, abusive and unfair practices. We believe that provisions aiming to minimize the room for these practices and ensuring the fairness and neutrality of credit rating agencies have to be explicitly included in the criteria.

Question (12)

Yes to all three questions.
Recognition by predominant users of securities ratings in the United States should be one of the conditions as far as US credit rating agencies are concerned. We also feel that existing substantive criteria for designating agencies as NRSROs are too vague, and would like to welcome various proposals in the Release to enhance clarity and transparency of the recognition criteria and designating process.
However, in case of non-US rating agencies, their recognition in their domestic markets should be considered.

Question (13)

Yes. We agree that the Commission should condition NRSRO recognition on a rating agency developing and implementing procedure reasonably designed to ensure credible, reliable, and current ratings. However, such procedures and minimum requirement for due diligence should be developed by a rating agency itself and checked by the Commission.

Question (14)

Generally, contacts with senior management should be an integral part of credit rating analysis. However, in certain cases, credit ratings issued without access to senior management of an issuer could have similar quality and should be accepted.

Question (15)

As qualitative analysis of issuers should be an integral part of credit ratings, we don't think a credit rating agency solely dependent on a computerized statistical model qualifies as a NRSRO.

Question (16)

Yes. We generally agree.

The minimum standards for training and qualification of analysts should be developed by each rating agency and verified by the Commission.

Question (17)

No. We think these should be left to each credit rating agency.

Question (18)

Yes. Rating business should be completely independent from any other business.
Credit rating agencies themselves should refrain from conducting other activities, such as rating advisory services.

Question (19)

Yes.

Question (20)

Yes. We support the idea that NRSRO status may be granted to a rating agency in respect of its activities limited to certain sectors or geographic areas.

The current NRSRO designation acts as a barrier to the entry into the credit rating business in the United States, because rating agencies without a NRSRO designation cannot start business in the United States. Rather, rating agencies widely recognized in the countries with developed capital markets, such as Japan, should be recognized as NRSROs.

Question (21)

Yes. We welcome the idea of provisional NRSRO status for rating agencies that comply with NRSRO recognition criteria but lack national recognition. We believe that creating such a status would help foster healthy competition among rating agencies by facilitating the entries of high-quality but not well-known new agencies.

Question (22)

No. See answer to Question (15).

Question (23)

Yes. We believe that these should be an essential part of recognition criteria. Please also see our answer to Question (11).
For example, we believe that the Commission should condition NRSRO recognition on an NRSRO's agreeing to strictly separate its ownership and management and avoid secondment of personnel from shareholders to ensure the fairness and neutrality of a rating agency.

Question (24)

Standards and best practices should be developed by rating agencies.

Question (25)

Yes. We support the idea that recognition of NRSRO occurs through Commission action rather than through present staff no-action letter, with explicit time period. Appeal process also should be established.

Question (26)

Yes.

Question (27)

Yes. Ninety days seems appropriate.

C. Examination and Oversight of NRSROs

Question (28)

Yes. In principle NRSRO status should be revoked if original qualification criteria are not met. However, some form of remedial period should be given to NRSROs to address a certain problem before revocation.

Question (29)

Every three years, and occasionally if necessary.

Question (30)

Yes.

Question (31)

Yes. Every three years, and occasionally if necessary.

Question (32)

No. Commission's review in every three years is sufficient.

Question (33)

We have no comments as this is presumed to be U.S. domestic matter.

Question (34)

Yes.

Question (35)

Yes. Minimum standards and best practices should be developed by rating agencies.

Question (36)

We have no comments.

D. Conflicts of Interest

Question (37)

Yes.

Regarding additional source of potential conflicts of interest, we would like to point out shareholder's influence. For example, a credit rating agency owned by a newspaper company dependent on advertising fee from various corporations could be influenced in assigning ratings to such corporations.

Question (38)

Concerns regarding certain potential conflicts of interest may not be addressed through such disclosure only.

Question (39)

Yes.

Question (40)

Yes.

Question (41)

Yes.

Question (42)

Yes.

Question (43)

Yes.

Question (44)

In the case of a rating agency owned by particular industries, such as a bank and a newspaper company, its ownership and management should be strictly separated and secondment of personnel from the parent company should be avoided. Unless they are properly rectified, conflicts of interest cannot be addressed.

E. Anti-competitive, Abusive, and Unfair Practices

Question (45)

Yes. These specific practices include;

(a) An NRSRO's agreeing to strictly separate its ownership and management and avoid secondment of personnel from shareholders to secure proper handling of confidential information gained from rated issuers.

(b) An NRSRO's agreeing to forbear from exploiting shareholders' influence (e.g. a bank or a newspaper company) in soliciting ratings.

(c) An NRSRO's agreeing to forbear from exploiting shareholders' influence in manipulating newspaper reports to favor the NRSRO.

(d) An NRSRO's agreeing to forbear from requiring issuers to purchase ancillary services as a precondition for performance of the rating service.

(e) An NRSRO's agreeing not to engage in abusive practices with respect to unsolicited ratings, such as sending bills or suggesting a rating upgrade to induce payment.

Question (46)

Not sufficient. Periodical review by the Commission would help. In principle NRSRO status should be revoked if original qualification criteria are not met.

Question (47)

Yes. See answer to Question (45).

Question (48)

Yes. See answer to Question (45).

F. Information Flow

Question (49)

Yes. We basically support the idea of establishment of procedures to assure certain disclosures of information, such as identification of unsolicited rating. However, it seems very difficult to document procedures of preventing a newspaper company from manipulating news reports for the benefits of its subsidiary rating agency.

Question (50)

No. Extent and way of disclosure of key basis of, and assumptions underlying rating decisions should be determined by each rating agency.

Question (51)

We decline to make comments, as the term "performance information" in the question does not seem to be clear.

Question (52)

Yes.

Question (53)

Yes. Ratings by NRSROs for regulatory purposes should be widely disseminated on virtually free of charge basis.

Question (54)

Yes. By press release and through various media.

G. Other

Question (55)

No comment.

Question (56)

No comment.