Moody’s downgrades Japan sovereign debt
2014-12-01 11:35:58
Moody’s Investors Service downgraded Japan’s government debt rating on Monday by one notch, the first downgrade by a major rating firm since 2012.
Citing “heightened uncertainty over the achievability of fiscal deficit reduction,” Moody’s downgraded Japan’s government debt to A1 from Aa3.
Moody’s said Prime Minister Shinzo Abe ’s decision to postpone another sales tax increase by 18 months “poses risks to fiscal consolidation and, over the longer term, to debt affordability and sustainability.”
Many economists have endorsed the view that implementing the sales tax increase was necessary to cut the nation’s debt.
Moody’s, which last downgraded Japan’s debt in 2011, said “fiscal consolidation will be increasingly difficult to achieve as time passes.” It also cited uncertainty over the timing and effectiveness of debt-reduction measures as posing a risk to Japan’s growth, and of a rise in Japanese government bond yields.
Japan is the developed world’s most indebted country, with debt more than two times the size of its gross domestic product.
The Japanese government has said it will try to achieve a primary government balance—meaning tax revenue matches spending, excluding interest payments on government debt—by 2020.
Prime Minister Shinzo Abe said at a debate earlier Monday that his administration would work to develop a concrete plan to achieve that goal.
The yen fell to a fresh-seven year low of 119.15 versus the U.S. dollar after the downgrade but recovered to a stronger level than prior to the announcement.