Japan Downgraded By S&P: What You Need To Know

Standard & Poor’s seems to be in some kind of downgrade spree. After last week’s demotion of Brazil’s sovereign credit rating to BB+, the firm has now cut Japan’s credit rating from AA- to A+.

The demotion was framed as a condemnation of Shinzo Abe’s economic strategy, which has led to a deterioration of Japan’s sovereign “creditworthiness” over the past three or four years.

“Despite showing initial promise, we believe that the government’s economic revival strategy – dubbed ‘Abenomics’ – will not be able to reverse this deterioration in the next two to three years,” S&P’s report added.

Related Link: S&P Cuts Brazil To Junk: What It Means

A recent Financial Times article explained, “The downgrade is unlikely to trigger any immediate turmoil in the Japanese government bond markets, which are driven by deflation and large-scale asset buying by the Bank of Japan.”

However, the impact on Abe himself might be larger.

Other Downgrades

S&P was not the first to downgrade Japan’s debt rating. In April, Fitch demoted Japan to an A rating. Last December, Moody’s also cut Japan’s credit rating to A1 – which is equal to an A+ from S&P.

However, these downgrades were based on other issues, like the country’s increasing public debt, low consumption and an imminent deflation.

In fact, S&P also seems to agree with some of these issues. In a previous report, the firm expressed preoccupation regarding Japan’s “very weak fiscal position that the country’s ageing population and persistent deflation exacerbate.”