Japan’s sovereign rating has yet to reach the point at which it should be downgraded, a senior vice president at Moody’s Investors Service said.
“There has to be an accumulation or critical massive negative developments to happen before we lower the rating,” Thomas Byrne, who is responsible for the ratings of Japan and other major Asian economies, said in Tokyo on Friday. “We haven’t reached that point yet.”
Moody’s lowered Japan’s credit grade to Aa3 in August with a stable outlook, citing a buildup in government debt. Prime Minister Yoshihiko Noda faces parliamentary battles over raising the nation’s 5 percent consumption tax rate to contain the deficit and opposition over international trade pacts that could drive growth.
Japan’s rating is the fourth-highest grade assigned by Moody’s. The nation’s low dependence on foreign creditors and large overseas assets help it buffer global financial shocks, Moody’s said in a statement in December.
The stable outlook on the Aa3 grade is predicated on the consumption tax increase “being at least partially implemented before 2015,” Byrne said.
A political impasse that delays the passage of changes to the tax code could be a negative factor for Japan’s rating, Byrne said, adding that a sales tax increase is “necessary” for long-term fiscal sustainability.
The ruling Democratic Party of Japan has proposed doubling the 5 percent sales tax to 10 percent by October 2015 to help pay for ballooning welfare costs for the rapidly graying nation.