Standard & Poor’s has slashed its rating on Japanese debt from AA- to A+ in what it framed as an indictment of Prime Minister Shinzo Abe’s economic strategy.
The downgrade is unlikely to trigger any immediate turmoil in the Japanese government bond markets, which are driven by deflation and large-scale asset buying by the Bank of Japan.
But the decision is likely to cause concern in Mr Abe’s office because S&P blamed it directly on disappointment with his policies. “Economic support for Japan’s sovereign creditworthiness has continued to weaken in the past three to four years,” the agency said.
“Despite showing initial promise, we believe that the government’s economic revival strategy – dubbed Abenomics – will not be able to reverse this deterioration in the next two to three years.”
Other agencies have tended to frame their downgrades as an automatic response to Japan’s growing public debt. Fitch cut Japan to an A rating in April. Moody’s cut Japan’s rating to A1, the same as an A+ from S&P, last December.
Japan has gross government debt amounting to 246.1 per cent of gross domestic product, according to the International Monetary Fund, the highest of any advanced country, and a deficit of 6.2 per cent of GDP.
S&P said the outlook on its rating was stable. Eleven months ago, S&P had affirmed its high rating on Japan, saying a downgrade would be warranted only if economic growth stumbled.
It said Japan was still “relatively prosperous,” boasting a “diversified economy, political stability, and stable financial system.” But against this stood “a very weak fiscal position that the country’s ageing population and persistent deflation exacerbate.”
Household consumption has been weak since Japan lifted its national sales tax from 5 per cent to 8 per cent in April last year. Mr Abe has had mixed success in persuading companies to lift wages.
Inflation was supposed to reach 2 per cent last April, under an unprecedented programme of monetary stimulus from the Bank of Japan. Instead, weak spending and a collapse in oil prices has thrown Japan back to the brink of deflation, a problem for nearly two decades.
BY PATRICK MCGEE AND ROBIN HARDING
