Fitch, the US based credit rating agency, dropped Japan’s credit rating by one notch on Monday as the country did not successfully meet this year’s fiscal budget to offset a delay in a sales tax increase.
Due to doubts over the degree of political commitment to fiscal consolidation, Fitch reduced Japan’s rating to A from A+.
A plan to lower the corporate tax rate also increases uncertainty about whether the government will generate enough revenue to address its debt burden, Fitch said in a statement.
Moody’s rating agency similarly also downgraded Japan’s rating to A1 late last year due to a delay in a sales tax increase.
Although the agency’s current outlook on the country is stable, their ratings act as an indication of the challenges Prime Minister Shinzo Abe’s government faces in trying to promote growth.
Fitch’s decision may cause the government to tighten measures in a fiscal plan which is expected to be released in June.
Additionally, on Thursday the Bank of Japan (BOJ) will announce its monetary policy means.
Fitch has also stated that the government’s use of stimulus spending, negative economic growth and lack of corporate profit growth impacted their decision. Thus, the release of Japan’s Consumer Price Index (CPI), which will be released on Friday, will be an indicator of the performance of the Japanese economy.
BOJ expanded their monetary base late October last year with the application of a quantitative easing program. However, the $700 billion injection was not enough to pick up the slow pacing economy who has been battling with deflation.