TOKYO (Reuters) – Standard & Poor’s on Tuesday cast doubt on Prime Minister Shinzo Abe’s ability to repair Japan’s tattered finances less than two weeks away from a snap election, after Moody’s downgraded the country’s sovereign debt rating.
Abe’s decision to delay a sales tax increase by 18 months may help the economy in the short term, but there is still no guarantee taxes will rise because the political dynamic could change after the election, Takahira Ogawa, director of sovereign ratings at S&P, told Reuters.
The growing reservations about Japan come at an awkward time for Abe as he has called an election on Dec 14 that has become a vote on whether he has done enough to fundamentally improve the prospects for growth.
“I might be wrong, but judging by history I’m not optimistic about getting a detailed fiscal plan,” Ogawa said.
“In addition, if the government fails to implement its plan, then it doesn’t make any sense.”
S&P has an AA- rating on Japan, which is three notches from the top rating of AAA. S&P’s rating on Japan has a negative outlook, meaning a downgrade is possible.
Ogawa, when asked, declined to confirm if he was reviewing Japan’s current rating for a possible downgrade.
Moody’s Investors Service on Monday downgraded Japan to A1, one notch below S&P’s rating, citing rising uncertainty over the country’s ability to hit its deficit-reduction goal.
The downgrade brings its Japan rating into line with that of Fitch, which said last month it would complete a review of Japan’s ratings by year-end, calling Abe’s decision to delay a sales tax hike a “significant development”.
Abe’s decision to delay a sales tax hike to 10 per cent from 8 per cent may prove popular with voters, but some economists say it is now impossible to eliminate the primary budget deficit in fiscal 2020, an important fiscal consolidation target.