Credit ratings agency Moody’s has cut its rating on Japan’s government debt. It has been reduced by one notch to Aa3 because of the country’s high debt levels and budget deficit.
Back in May Moody’s warned Tokyo a downgrade was coming unless it stepped up efforts to narrow the budget gap.
Japan’s debt has built up since the 2009 global recession and its revolving-door political leadership – five prime ministers in six years – has hampered effective economic strategies.
Japan’s Finance Minister Yoshihiko Noda was guarded saying: “I’ll refrain from making any specific comments on the ratings by the private rating agencies. Having said that, I believe that confidence in Japanese government bonds is solid if you look at the recent stable bidding for our bonds.”
Analysts said the downgrade was hardly a surprise and the reaction in financial markets was muted.
Moody’s believes Japan needed to achieve three percent nominal growth in its gross domestic product to get the deficit under control. GDP is expected to contract by 0.7percent this year.
One problem for Japanese businesses is the high value of the yen against other currencies which makes exports difficult.
The government has just unveiled help for them including a $100 billion emergency credit facility aimed at making it easier for Japanese companies to buy foreign firms.