Moody's cuts Japan rating

International ratings agency Moody's said Monday it had lowered Japan's debt rating by one notch to A1 from Aa3, while maintaining a stable outlook for the world's third largest economy.

Moody's said a main reason for the downgrade was rising uncertainty over the government's deficit reduction targets. The agency's analysts expressed doubts about Prime Minister Shinzo Abe's ability to achieve his goals amid "tensions" inherent in promoting growth while, at the same time, reversing the "rising debt trajectory."

Moreover, they questioned Abe's ability to push through structural reforms, which they said were "crucial to achieve fiscal consolidation." The prospect of Japan failing these two policy goals was raising questions about the "affordability and sustainability" of Japan's huge debt load, Moody's added in a statement.

Unsustainable debt

Japanese sovereign debt is among the highest in the world, amounting to more than twice the size of the economy. After two decades of stagnating growth, Shinzo Abe changed economic policy in 2010 under a program dubbed "Abenomics." The program included massive government spending and accommodative monetary policy by the country's central bank.

According to a recent report by the International Monetary Fund (IMF), the program had caused Japan's debt to skyrocket to 245 percent of gross domestic product (GDP) in 2014 which would only start to decline under the "most favorable economic and fiscal reforms."

Under efforts to rein in spiraling debt, Abe raised sales tax from 5 percent to 8 percent in April, which, however, led to a sharp decline in growth. Preliminary GDP data last month showed Japan's economy shrank 1.9 percent between April and June, which was followed by 0.4 percent contraction in the third quarter.

As a result, Abe postponed a further hike in sales tax to 10 percent, scheduled for 2015, and called snap elections to ensure popular support for his economic policy.

uhe/pad (AFP, Reuters, dpa)