S&P downgrades Japan

Japan's Prime Minister Shinzo Abe 

TOKYO(Reuters): Standard & Poor’s on Wednesday downgraded Japan’s credit rating by one notch to A+, saying economic support for the country’s sovereign creditworthiness has continued to weaken in the past three to four years.

S&P cut its rating on Japan by one notch from AA- to A+, which is four notches below its top rating AAA. The agency raised its outlook from negative to stable.

It was the first Japan downgrade by S&P since January 2011 and came 4-1/2 years after it last lowered its outlook from stable to negative.

The downgrade brings its Japan rating into line with rival ratings agency Moody’s Investors Service, which downgraded Japan to A1 in December last year. Fitch Ratings cut its rating on Japan by one notch to A in April.

The yen shrugged off the lowering of the credit rating. It briefly fell but then regained ground.

“We believe the likelihood of an economic recovery in Japan strong enough to restore economic support for sovereign creditworthiness commensurate with our previous assessment has diminished,” S&P said in a statement.

It added that “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.”

The world’s third-largest economy shrank in April-June and analysts expect any rebound in July-September growth to be feeble as private consumption remains sluggish and China’s slowdown dampens prospects for a solid recovery in exports. Japan aims to return to a primary budget surplus in fiscal 2020 and then lowering the debt-GDP ratio, which is the worst in the world at around twice the size of the country’s $5 trillion economy. The S&P downgrade came the day after the Bank of Japan stood pat on policy.

BOJ Governor Haruhiko Kuroda voiced confidence that the economy can weather the hit from China’s slowdown and weak demand in the rest of Asia, suggesting that he sees no immediate need to expand stimulus further.

But he reiterated the central bank “will not hesitate” to deploy more support if Japan’s recovery and the BOJ’s 2 percent inflation target are threatened.