Ratings agency Fitch has delivered a vote of no confidence in Japan’s ‘Abenomics’ reforms as it downgraded the country’s credit rating.
Fitch, one of the premier global credit rating agencies, downgraded Japan from an ‘A+’ rating down to ‘A’ today, though it said the outlook for the new rating was “stable”, which suggests it will not downgrade the country further.
Japan’s credit rating is now five notches below the top rating of ‘AAA’.
The ratings agency had put Japan on “negative watch” in December 2014 after the country announced it was deferring a planned rise in its consumption tax.
And Fitch said today Japan’s budget for 2015-2016 “did not include sufficient structural fiscal measures....to replace a deferred consumption tax increase”.
Since the election of prime minister Shinzo Abe in December 2012, Japan has embarked on a series of reforms, dubbed ‘Abenomics’ to improve its economy.
Following a strong start, which included a large stockmarket rally driven by quantitative easing from the Bank of Japan, long-term reforms have proven hard to implement.
The negative reaction to a rise in Japan’s consumption tax hike from 5 per cent to 8 per cent in 2014 led to Mr Abe proposing to defer a planned second increase to 10 per cent, originally slated for October 2015.
But Fitch said Japan needed to maintain strong fiscal discipline, including tax rises, because of its “high and rising level of government debt”, which is expected to hit 244 per cent of GDP by the end of 2015.
The firm also pointed to the weakness in Japanese economic growth as a contributor to the lower credit rating, citing its average growth rate between 2011 and 2015 as 0.8 per cent, much lower than the 3.1 per cent average for other countries with an ‘A’ credit rating.
