Standard & Poor’s, one of the world’s biggest credit ratings agencies, just cut Japan’s rating.
Its credit rating previously got an AA- grade, but it’s now sitting at A+. That’s still an investment-grade rating, but S&P are flagging major concerns for the Japanese economy, which has grown very slowly and accumulated a mountain of government debt.
It’s not a good verdict for Abenomics, the pet project of Prime Minister Shinzo Abe. Here’s what S&P says:
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. Over 2011-2014, average per-capita income in Japan slipped to US$36,000 from close to US$47,000. Apart from a sharp depreciation in the exchange rate between the yen and the U.S. dollar, this also reflected weak average economic growth during the period and persistently weak price trends. 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.
Abe has tried to use massive monetary and fiscal easing, as well as structural economic reform to revive Japan’s sluggish growth. But after a sales tax hike in April 2014, growth slowed down by much more than expected, and the Bank of Japan is still nowhere near its new 2% inflation target.
What’s more, the country’s outlook has been budged from stable to negative. That’s S&P’s signal that further cuts are most likely to come.
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