Moody’s credit-rating firm recently expressed that they would not take any negative rating action against Japan if the government fails to meet its primary budget-balancing target next fiscal year. According to Moody’s Japan sovereign analyst, Christian de Guzman, the target should be seen as a commitment to fiscal reform rather than a strict requirement that, if missed, would trigger a downgrade.
The fiscal target for 2025, which aims for a primary budget surplus, is considered by many analysts to be overly ambitious. Given the current state of public borrowing in Japan, reaching this surplus is seen as challenging. However, de Guzman emphasized that as long as the government continues to work towards fiscal stability through spending and revenue reforms, missing the target may not have immediate negative consequences on Japan’s credit rating.
With the recent increase in borrowing costs due to the Bank of Japan’s decision to end years of negative interest rates, fiscal reform has become even more critical for Japan. The country’s public borrowing now exceeds twice the size of its economy, making it imperative for the government to address its fiscal challenges. Moody’s expects the Bank of Japan to gradually normalize its policies, giving the government some time to adjust its fiscal settings before interest rates rise significantly.
While Moody’s acknowledges the difficulty of achieving a primary budget surplus, the agency sees Japan’s commitment to fiscal reform as a positive signal. As long as the government remains dedicated to its reform efforts and continues to work towards improving its fiscal outlook, Moody’s is unlikely to take any immediate negative rating actions.
Moody’s last set Japan’s credit rating at A1 with a stable outlook in 2014. Despite the challenges Japan faces in meeting its fiscal targets, Moody’s assessment of the country’s creditworthiness remains relatively unchanged. The agency recognizes the ongoing efforts towards fiscal reform and the importance of maintaining a commitment to long-term fiscal stability.
Japan’s fiscal reform efforts are crucial in addressing the country’s growing debt burden and ensuring its long-term economic stability. While Moody’s provides an assessment of Japan’s credit rating based on its current fiscal situation, the agency also recognizes the government’s commitment to reform as a positive sign for the country’s future financial health.
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