TOKYO: Moody’s downgraded its credit rating for Japan on Monday, 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, reported AFP.
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 mountains.
The levy rise delivered a body blow to Abe’s efforts to rev up growth, just as the world’s number three 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 policymakers can overcome the tensions inherent in promoting growth while simultaneously stabilising and reversing the rising debt trajectory,” Moody’s said in a statement.
But postponing the fresh tax rise to 10.0 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 programmes associated with a rapidly ageing population,” the ratings agency added.
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