Moody’s is warning it may cut Japan’s sovereign credit rating. The ratings agency said that could happen if the government does not carry out the comprehensive tax reform needed to bring ballooning public debt under control.
Moody’s senior vice president and regional credit officer said needs stability at the top to enact effective fiscal reform. The country has had five prime minister since 2006.
Prime Minister Naoto Kan, who took office last June, has staked his career on fiscal reforms, including a rise in the five percent sales tax to fund increasing social security costs.
He urged the opposition to join talks on the topic. But the opposition is refusing and instead is piling pressure on the unpopular Kan to call a snap election by threatening to block budget-related bills.
Kan also faces rebellion in his own party but said that Japan needed to press ahead.
“To firmly carry out the unified reform of tax and social security systems is the most important thing in gaining market confidence,” he told reporters after Moody’s announcement.
Japan, along with the United States, has faced criticism from the IMF and ratings agencies for lacking credible plans to bring their deficits under control.
Mounting welfare costs and shrinking savings as a result of a rapidly ageing population raise questions about the longer term sustainability of Japan’s debt burden.