Japan’s sovereign debt ratings might downgrade due to concern about a weak policy response to faltering economic growth prospects and growing public debt, Credit rating agency Moody’s told Reuters on Tuesday.
Japan’s both Aa2 foreign and local currency bond ratings have been placed for review by Moody’s investor services.
“Government debt level is already well above of other advanced economies and without a proper effective plan the debt will rise inexorably,” Moody’s said, citing concerns about the government's ability to achieve a credit deficit reduction target.
After changing the outlook on Japan’s Aa2 sovereign rating to negative from stable in February, the review announcement took Moody's one step closer to an actual downgrade.
“We would focus on the scope, effectiveness and timeliness of the government's proposed tax reform in June and the fiscal costs and economic consequences of the March 11 disaster in the review,” Moody’s said.
A weak or delayed reform programme joined with continued weak economic growth prospects would ... reduce the probability that it could remain in the Aa range, it warned.
Although a Japanese government bonds (JGBs) crisis is doubtful in the near term, pressures could build up over the longer term, Moody's said, adding that a tipping point could be reached at some point in the future.