The enactment of consumption tax hike bills by the Diet on Friday is good for Japan’s credit rating, Moody’s Investors Service said Monday.
“The agreement to raise the tax is credit positive for Japan and is one of the first serious efforts in many years to rein in the budget deficit and thereby tackle Japan’s high level of government debt,” Moody’s Senior Vice President Thomas Byrne said in a report.
The major credit agency has assigned a rating of Aa3, its fourth-highest grade, to Japanese government bonds.
The new law allows the 5 percent consumption tax rate to be raised to 8 percent in April 2014 and 10 percent in October 2015.
Increasing the tax is essential because it “signals policy decisiveness after years of political and policy drift,” the report said. The hike seeks to “make social welfare spending sustainable” while the revenue increase is “an essential component of Japan’s fiscal consolidation goal,” it also said.
However, it will likely be a “challenge” for Japan to achieve its goals, as indicated in the law, of 3 percent growth in nominal gross domestic product and 2 percent growth in real GDP, Moody’s said.