Fitch Ratings has downgraded Japan’s long-term credit ratings amid concern’s about the island nation’s commitment to fiscal consolidation.
The rating agency said Monday it is downgrading Japan’s issuer default ratings (IDRs) to ‘A’ from ‘A+’, based on its judgment that the Japanese government did not include sufficient structural fiscal measures in its latest budget. Fitch put Japan’s IDRs on review for possible downgrade back in December after the government decided to delay a scheduled consumption tax increase, and warned that the ratings would be downgraded in the absence of broadly equivalent fiscal measures in its next budget.
Instead, Fitch reports that the budget cut corporate tax rates, and signaled that the government intends to cut rates again in fiscal 2016. Also, the government introduced a supplementary budget for fiscal 2014 that essentially spent an unexpected increase in revenue, it notes. “These developments increase Fitch’s uncertainty over the degree of political commitment to fiscal consolidation,” it says.
Fitch notes that the government is set to unveil a new fiscal strategy in the summer. “The details of the strategy will be important, but the strength of the government’s commitment to implement it will be even more important and will only become clearer over time,” it says.
Overall, Fitch says that Japan’s ratings are supported by strong credit fundamentals including a high-income, wealthy economy; high governance standards; strong core public institutions; and deeply-entrenched social and political stability. The new rating carries a stable outlook, reflecting Fitch’s assessment that upside and downside risks to the ratings are currently broadly balanced.