Fitch Downgrades Japan’s Credit Rating to ‘A’

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The FINANCIAL — Fitch Ratings downgraded Japan’s credit rating on April 27, highlighting the challenges that Prime Minister Shinzo Abe’s administration faces in trying to stoke growth while dealing with the nation’s towering public debt.

Fitch downgraded Japan’s long-term foreign and local credit issuer rating by one notch to A from A-plus, citing a lack of effort on behalf of the Japanese government to tackle fiscal consolidation in the budget for the current fiscal year, according to Nasdaq.

The ratings firm had previously said a downgrade was in order if Japan didn’t take broad fiscal measures in the budget after Mr. Abe decided to delay a second sales tax increase scheduled for October 2015 after an earlier increase chilled economic activity.

Japan’s public debt is currently more than twice the size of annual gross domestic product, as social security system payments have ballooned in recent years.

“Japan’s main sovereign credit and rating weakness is the high and rising level of government debt,” a report by Fitch released about the downgrade said.

The firm forecasts gross general government debt to GDP will increase to 244% of GDP by the end of 2015, the highest of any sovereign-debt issuer the firm rates.

Fitch also cited Japan’s economic growth as another “rating weakness.” Two years after Mr. Abe launched his pro-growth platform, “prospects for success in permanently lifting the economy’s real and nominal GDP growth rates remain in doubt,” the report said.

Most recently, Moody’s Investors Service downgraded Japan’s credit rating in December. Moody’s also cited uncertainty about the country’s fiscal situation after Mr. Abe said he would delay the second sales tax increase.

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The yen weakened slightly against the dollar after the news. The vast majority of Japan government bonds are domestically owned so foreign financing, which normally would have an impact on the currency, is unlikely to have a meaningful impact on the yen, said Geoffrey Yu, currency strategist at UBS.

The dollar was at Yen119.19 shortly after the announcement, compared with Yen119.13 before Fitch’s move.


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