Fitch Ratings has warned that it may downgrade Japan’s debt rating again unless additional fiscal reform measures are taken on top of the planned consumption tax increase.
“The likely passage of legislation that will allow a doubling of the consumption tax in Japan is already reflected in the sovereign’s ratings,” the international credit ratings agency said Wednesday, a day after the Lower House passed the legislation designed to rebuild the nation’s tattered finances.
In May, Fitch downgraded Japan’s long-term foreign and local currency issuer default ratings by one notch to A-plus with a negative outlook.
“As the only substantial measure planned to improve Japan’s weak public finances, failure to pass the relevant legislation would have been negative for the sovereign,” Fitch said.
The highly contentious plan to double the consumption tax to 10 percent by October 2015 “is vulnerable to implementation and political risk, with a significant faction of the governing party opposed to the increase,” the ratings agency said, citing the risk that the ruling Democratic Party of Japan may split up.