Fitch said Monday that the government did not include sufficient measures in its budget to replace a sales tax hike it put off in the current fiscal year, which ends next March.
Japan's debt is the largest among developed nations and more than twice the size of its economy. The country eventually has to boost taxes to cover rising costs for health and elder care as the average age in the nation rises. But a sales tax increase last spring hurt consumer and business spending as the Japanese economy slipped into a recession.
That led Prime Minister Shinzo Abe to put off a second, planned hike, illustrating the tough position in which government leaders have found themselves.
Fitch said Monday that Japan's main credit and rating weakness is due to its high and rising level of government debt. The ratings agency noted that the government has already cut corporate tax rates and plans to do so again in fiscal 2016.
"These developments increase Fitch's uncertainty over the degree of political commitment to fiscal consolidation," Fitch said, noting that Japan is set to unveil a new fiscal strategy this summer. "The details of the strategy will be important, but the strength of the government's commitment to implement it will be even more important and will only become clearer over time."
Fitch downgraded Japan's long-term foreign and local currency issuer default ratings to "A'' from "A+." It also lowered its senior unsecured foreign and local currency bonds ratings to "A'' from "A+."
Fitch said that strong credit fundamentals like a high-income, wealthy economy and social and political stability support Japan's ratings.
Most of Japan's public debt is held by the Bank of Japan and other Japanese financial institutions, so it is considered relatively stable.Suggest a correction