Fitch Ratings on Monday slashed its outlook on Japanese government bonds to negative from stable, citing a lack of specific steps to achieve the country’s fiscal reform goal following another delay in the consumption tax hike.
“The outlook revision primarily reflects Fitch’s decreased confidence in the Japanese authorities’ commitment to fiscal consolidation,” the European credit rating agency said in a statement.
Fitch currently assigns an A to the long-term foreign and local currency issuer default ratings on Japanese government bonds.
The second-stage consumption tax increase from 8 percent to 10 percent in April next year was “an important element” in achieving Japan’s goal of turning the country’s fiscal deficit into balance by fiscal 2020, Fitch said.
Prime Minister Shinzo Abe has pushed back the hike to October 2019, citing the need to spur the domestic economy as part of efforts to mobilize all policy tools to avert a global economic crisis.
“The government said it remains committed to its target to primary balance by fiscal 2020, although it did not set out any further specific measures to achieve this goal,” Fitch said.
Under the rating agency’s revised fiscal projections, the ratio of Japan’s debt to gross domestic product will continue rising, saying it “no longer expects the sales tax to rise in its base case.”