S&P affirms ratings on Japan but outlook remains negative

Standard & Poor’s said Thursday that it had affirmed its long-term sovereign credit ratings on Japan at ‘AA-‘ but the outlook remained negative, despite efforts to boost the nation’s growth, dubbed Abenomics.

S&P also affirmed its short-term unsolicited sovereign credit ratings on the world’s third largest economy at ‘A-1+’.

“Our ratings on Japan balance the country’s strong external position, its prosperous and diversified economy, political stability, and its stable financial system against a very weak fiscal position that the country’s ageing population and persistent deflation exacerbate,” S&P said.

The Japanese economy had been on the upswing as Prime Minister Shinzo Abe’s blitz to spur growth helped sharply weaken the yen, giving a lift to exporters’ profitability and driving a stock market rally last year.

A huge monetary easing campaign by the Bank of Japan was a cornerstone of the programme, aimed at overcoming years of deflation.

But economists warned that strong growth was taking a hit as Tokyo raised its consumption tax to 8.0 percent from 5.0 percent — the first rise since the late 1990s.

S&P said the outlook on the long-term ratings remained negative, which “reflects our view of the still-sizable risk of a slow return to sustained inflation and healthier economic performance”.

It added: “Following several quarters of strong growth, the economy contracted sharply in the wake of the sales tax hike in April 2014.”

Japan’s economy shrank 1.8 percent on-quarter in the three months to June, worse than the initially estimated fall of 1.7 percent.

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