Moody’s says Abe’s third arrow ‘credit positive’ for Japan

Moody’s Investors Service has backed the latest installment of Japan’s ‘Abenomics’, stating the proposals are “credit positive for the sovereign”.

In its report ‘Unfolding Japan Growth Strategy Credit Positive for Sovereign, Other Rated Entities’, the rating agency acknowledged the plan “lacks detail, but makes up for this in breadth”.

Prime minister Shinzo Abe has put forward a plan to help boost growth while keeping fiscal discipline as part of its ‘third arrow’ of Abenomics. The policy package “Basic Policies for Economic and Fiscal Management and Reform 2014”was approved by the cabinet earlier this week.

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Moody’s stated: “As structural factors continue to constrain Japan’s long-term potential growth rate, an effective growth strategy represents a vital component of the government’s goal to achieve debt sustainability by the end of this decade.

“A centerpiece of the newly-approved plan is the phased reduction of the corporate tax rate. A permanent lowering in corporate taxes would reduce an international competitive disadvantage for local businesses and incentivise capital spending, helping to support stronger economic growth.”

The ratings agency added it would take time for reductions in the tax rate to impact the investment decisions of non-financial corporates, but in the medium to long term the benefits would include higher confidence levels and improved demand for goods and services.

It also stated: “Other measures in the package -- including regulatory and corporate governance reform -- could make the private sector more dynamic and efficient, and ultimately support growth.”