Moody’s Investors Service Inc. warned on Monday that the political stalemate following last week’s censure motion in the House of Councilors against Prime Minister Yoshihiko Noda is negative for the country’s credit rating.
Moody’s said the passage of the censure motion makes it difficult for the government to win opposition cooperation on important bills, including one allowing the government to issue deficit-covering bonds. If the Diet fails to pass the bond bill, the government will curb nonvital spending, such as tax transfers to local governments. This “will crimp government spending and ultimately economic growth if the political impasse persists,” Moody’s said.
The political stalemate “underscores the persistent policy inertia that has made it difficult for the Diet to forge and implement comprehensive fiscal and supply-side measures to rein in Japan’s large budget deficits and very large and rising government debt,” it said.
“Resolute political leadership is essential,” it said. Without the effort, “Japan risks a market demand for a risk premium on Japanese government bonds, making deficit-financing and debt-refinancing very costly,” it said.