S&P downgrades Japan for weak economic growth

The policies put in place by Japanese authorities to stoke economic growth are unlikely to reverse the deteriorating trend of the past three to four years sufficiently to keep its ratings intact, Standard&Poor’s judged on Wednesday. Under the circumstances, Deputy Prime Minister and Minister of Strategy & Finance Choi Kyung-hwan’s economic policy is enjoying a more favorable evaluation.

Europe’s refugee crisis could pose a major threat to sovereign bond ratings if mishandled at a political level, Standard & Poor’s has warned.

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.

Japan aims to return to a primary budget surplus in fiscal 2020 and then lowering the debt-gross domestic product ratio, which is the worst in the world at around twice the size of the country’s US$5 trillion economy. At present, Korea’s credit ratings assigned by the world’s three-largest credit rating agencies are higher than ever, and the average is higher than that of China and Japan.

The agency cut its rating on Japan’s debt to A+ from AA-, placing it below regional rivals China and South Korea.

In a report, the rating agency said the inability of member states to find co-operative solutions pointed to ongoing governance problems at the heart of the European Union, which it considered a “key factor” when rating sovereigns.

The dollar/yen exchange rate failed to respond to the announcement and was just 0.02% lower at 120.40 as of 10:46.

“The government’s fiscal reform plan released in June lacked details and specifics, making it look unreliable on how to ensure fiscal sustainability”, said Masaki Kuwahara, an economist at Nomura Securities Co.in Tokyo, who said the downgrade wasn’t a surprise after a cut by Moody’s Investors Service in December.