Fitch Ratings downgraded Japan’s credit rating by one notch after the government failed to take steps in this fiscal year’s budget to offset a delay in a sales tax increase, the agency said Monday.
Fitch cut its rating on Japan by one notch to A, which is five notches below the top AAA rating. The outlook is stable.
“One reason why Japan is at single A, which is a low rating, is the fragility around the baseline case for the public debt,” said Andrew Colquhoun, head of Asia-Pacific sovereigns at Fitch.
“The tolerance to fluctuations in growth and interest rates is low.”
The Japanese currency briefly fell to 119.42 per dollar from 119.17 before the announcement but then pared its losses to trade around 119.30 versus the greenback.
A plan to lower the corporate tax rate also increases uncertainty about whether the government will generate enough revenue to address its debt burden, Fitch said in a statement.
Fitch’s move follows a similar downgrade by Moody’s Investors Service late last year and could pressure the government to take tough measures in a fiscal discipline plan that is due sometime around June.
The government’s use of stimulus spending, disappointing economic growth and worries that corporate profit growth is not sustainable are also negative for Japan’s rating, Fitch said.
Report by Reuters