Moody’s has cut Japan’s credit forecast from A1 to Aa3 – in line with Fitch and one notch below Standard and Poor’s respective ratings.
Explaining its decision, Moody’s cited uncertainty over whether the country could achieve its ‘fiscal deficit reduction goals’ and ‘the timing and effectiveness of growth enhancing policy measures’.
Once hailed a saviour for the Japanese economy, Abe has sinced faced intense criticism for his economic policies
Specifically, one Moody’s representative linked the downgrade to Prime Minister Shinzo’s Abe’s delay to raise sales tax due in 2015. The increase was postponed after an initial sales hike reduced consumer spending, throwing the country into a recession. But some argue Japan should have stuck to its guns, as this lag could compromise its ability to cut its budget deficit by 2020.
The rating has come at an inconvenient time for Abe, due a snap election in two weeks’ time. Once hailed a saviour for the Japanese economy, Abe has sinced faced intense criticism for his economic policies – deemed ‘Abenomics’ – which include large government spending and making financial credit more easily available. With a public debt that’s twice the size of its economy, and the yen hitting a seven-year low against the dollar on Monday, all indications are that Japan has a long way to go to compete with other major economies.
Still, Abe has remained confident in his policies, which he described as “the only way to end deflation and revive the economy”.
Japan’s current credit rating is now one level lower than South Korea and China’s, four lower than the US and Germany, with a “stable” outlook.
