Fitch warned about possible decrease of sovereign credit rating of Japan

The ratings agency Fitch warned about possible decrease of sovereign credit rating of Japan, after Prime Minister Shinzo Abe canceled raising of sales tax, due to concerns that economy has not dealt with deflation. The weak growth of Japanese economy is also a credit weakness, as Abe’s attempts to revive the economy are not increasing the potential for growth. The government could avoid a decrease in the credit rating if take new steps to achieve the objectives of fiscal discipline. he lack of measures to strengthen the credibility of fiscal policy could lead to downgrade of the Japanese credit rating.

“The government decided to postpone the tax increase, which forced us to revise our assessment of the government commitment to fiscal consolidation”, said Fitch statement. “If the level of debt increases, it our next step is to reduce the rating of the country”, added the ratings agency.

The agency revised down its outlook for the Japanese rating A from stable to negative. The move was not entirely surprising amid market disappointment that the critical fiscal reforms are left in the background. The Japanese government plans to raise the sales tax from 8% to 10% during the next year, but Prime Minister Shinzo Abe postpone the measure until October 2019. The increase is planned from more than two years. The tax is important to revive the economy and restore the confidence of the nation in the growth of government.

In Fitch statement is explained that postponement means that the tax increase will not actually happen. The ration Debt/GDP in Japan was the worst in the world, amounting to more than twice the amount of 5-trillion Japanese economy. The loss of earnings, due to the postponement of the tax increase, raises concerns how the country will manage to reduce the debt burden and to achieve the goal of returning to a primary budget surplus in fiscal 2020.

more recommended stories