Japan’s credit rating downgraded by S&P

As uncertainty looms over global economy, Japan's credit rating cut by Standard & Poor’s, leading to further questioning of Prime Minister Shinzo Abe’s “Abenomics”

Photo by: AP
Photo by: AP

People are reflected on the electronic board of a securities firm in Tokyo, October 20, 2014

Ratings agency Standard & Poor's on Wednesday downgraded Japan's credit rating by one notch to A+, saying economic support for the country's sovereign creditworthiness had continued to weaken in the past three or four years.

S&P cut its rating for Japan from AA- to A+, which is four notches below its top rating of AAA. The agency raised its outlook from negative to stable.

It was the first Japan downgrade by S&P since January 2011 and came 4-1/2 years after it last lowered its outlook from stable to negative.

The downgrade brings its Japan rating into line with rival Moody's Investors Service, which downgraded Japan to A1 in December last year. Fitch Ratings cut its rating for Japan by one notch to A in April.

The yen shrugged off the lowering of the credit rating, briefly falling but regaining ground.

"We believe the likelihood of an economic recovery in Japan strong enough to restore economic support for sovereign creditworthiness commensurate with our previous assessment has diminished," S&P said in a statement.

"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," it added.

The world's third-largest economy shrank in the April-June quarter, and analysts expect any rebound in the current quarter to be modest as private consumption remains weak and China's slowdown dampens prospects for a solid recovery in exports.

Prime Minister Shinzo Abe's government aims to return to a primary budget surplus in fiscal 2020 and then lower the country's debt-GDP ratio, which is the worst in the world at around twice the size of the country's $5-trillion economy.

Abe is putting more emphasis on economic growth and the higher tax revenue it brings, rather than austerity, to achieve the budget-balancing goal.

The S&P downgrade came the day after the Bank of Japan stood pat on policy, casting doubt about the central bank's optimism.

BOJ Governor Haruhiko Kuroda voiced confidence that the economy can weather the hit from China's slowdown and weak demand in the rest of Asia, suggesting that he sees no immediate need to expand stimulus further.