Japan has had its credit rating downgraded by Moody’s due to concerns about the effectiveness of Abenomics.
The credit rating agency has lowered its rating on Japanese government debt by one notch, from Aa3 to A1.
It said there was “heightened uncertainty” about Japan’s ability to reduce its fiscal deficit and that also uncertainty about the “timing and effectiveness of growth enhancing policy measures, against a background of deflationary pressures”.
Given these uncertainties, Moody’s said there was an “increased risk” of Japanese government bond yields rising in the medium term, making it harder for the government to afford debt repayments.
The downgrade comes as Japan prepares to go to the polls following the announcement of a snap general election from prime minister Shinzo Abe as the country struggles to meet its growth and inflation targets.
Investors and economists have begun to question the chances of success for Abe’s extensive reform measures, dubbed Abenomics.
But in spite of the downgrade, Moody’s said the country deserved an A1 rating, still one of its higher ratings, because of its “significant credit strengths, including a large, diverse economy with a strong external position, very high institutional strength and a very strong domestic funding base”.
