Moody鈥檚 downgrades Japan鈥檚 credit rating
Print Edition
MOODY’S downgraded its credit rating for Japan yesterday, citing “rising uncertainty” over the country’s debt situation and Prime Minister Shinzo Abe’s faltering efforts to kickstart growth, with an election just two weeks away.
The ratings agency said it cut Japan’s rating by one notch to A1 from Aa3, after the economy sank into recession during the July-September quarter.
Last month, Abe announced that a planned sales tax rise set for next year would be delayed, as he called a snap election described as a referendum on his “Abenomics” growth blitz.
However, observers said it was more likely aimed at consolidating his power ahead of a party leadership vote next year.
Tokyo raised the sales levy in April to 8 percent from 5 percent for the first time in 17 years, to help pay down one of the world’s largest public debt.
The levy rise hit Abe’s efforts to rev up growth, just as the world’s No. 3 economy appeared to be turning a corner after years of deflation.
“The first driver for the downgrade ... is the rising uncertainty over whether the government’s medium-term deficit reduction goal is achievable, and whether policy-makers can overcome the tensions inherent in promoting growth while simultaneously stabilizing and reversing the rising debt trajectory,” Moody’s said in a statement.
But postponing the fresh tax rise to 10 percent, initially planned for late 2015, “poses risks” to Japan’s fiscal health, Moody’s said.
“Japan’s deficits and debt remain very high, and fiscal consolidation will become increasingly difficult to achieve as time passes given rising government spending, particularly for social programs associated with a rapidly ageing population,” Moody’s added.
Preliminary gross domestic product data last month showed Japan’s economy shrank 0.4 percent in the July-September quarter, following a 1.9 percent drop in the April-June period.
All eyes are now on the revised third-quarter figures due out next week and a possible upward revision.
But analysts say Abe must still follow through on promised reforms to the economy.
“The second driver for the downgrade is the rising uncertainty over the government’s ability to enhance medium-term growth through structural economic reform ... success in which will be crucial to achieve fiscal consolidation,” Moody’s said.
“While some indicators suggest a pickup in economic activity over the past year, potential economic growth remains low.”
Yoko Takeda, chief economist at Mitsubishi Research Institute, said the downgrade should be a wake-up call for Tokyo, the latest in a series of calls for Japan to get its fiscal house in order.
“I don’t see there being a short-term impact from the downgrade, but it’s a message telling Japan to set up a mid- and long-term plan to get rid of concerns about its fiscal soundness,” Takeda said.
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