If Japan doesn’t succeed in restoring its public finances, the country’s sovereign debt rating would come under renewed pressure, Moody’s Investors Service said Wednesday.
The warning followed last month’s ratings downgrade for Japanese government bonds by rival Standard & Poor’s, the first cut in nearly nine years, due to the government’s perceived lack of a coherent strategy to tackle the country’s mounting debt.
Japan’s fiscal problems will not lead immediately to a funding crisis, Tomas Byrne, senior analyst at Moody’s sovereign risk unit, told a press briefing.
However, “We see that over time pressures will be asymmetrical on the ratings . . . and will be mostly on the downside,” he added, calling for credible fiscal consolidation by the government.
Moody’s has assigned a rating of Aa2 for Japanese sovereign debt with a stable outlook.
If the government fails to pass related tax reform bills through the Diet, it would be seen as a “credit-negative development” and could possibly lead to a ratings downgrade, Byrne said.
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