Standard & Poor’s Ratings Services has downgraded Japan’s long-term sovereign credit rating from AA- to A+ on concerns ‘Abenomics’ is not working.
The ratings agency stated that the chances of an economic recovery in Japan that is strong enough to restore economic support for sovereign creditworthiness “commensurate with our previous assessment has diminished”.
It stated: “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.”
The ratings agency noted that while the strength of Japan’s governance remains a key factor supporting the sovereign rating, “we see slow decision-making among policy institutions somewhat impairing policy implementation”.
In spite of the downgrade, Japanese markets remaind buoyant with the Topix index closing 1.31 per cent higher, while the Nikkei 225 gained 1.43 per cent by the end of trading.
S&P has kept the outlook on the long-term rating as stable, and acknowledged it could raise the sovereign ratings “on very significant improvements in the government’s fiscal performance”.
But it also warned: “We could lower the sovereign ratings on indications that the government debt burden could rise more significantly than we currently expect, potentially due to continuously weak economic growth and prices trends.”
