Wed, Dec 03, 2014 - Page 15 News List

S&P doubts Abe able to fix economy

BLEAK OUTLOOK:Three notches off the top possible rating of “AAA,” Standard & Poor’s “AA-” rating of Japan has a negative outlook, meaning a downgrade is possible

Reuters, TOKYO

Standard & Poor’s (S&P) yesterday cast doubt on Japanese 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 nation’s sovereign debt rating.

Abe’s decision to delay a sales tax increase by 18 months might help the economy in the short term, but there is still no guarantee taxes are going to rise because the political dynamic could change after the election, S&P director of sovereign ratings Takahira Ogawa said.

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 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 nation’s ability to hit its deficit-reduction goal.

Abe’s decision to delay a sales tax hike to 10 percent from 8 percent might 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.

The primary budget deficit excludes debt servicing costs and income from bond sales.

Ogawa worries the plan, like many in the past, would lack specific steps to cut spending and boost revenues needed to shrink Japan’s public debt burden, which is the worst in the world at more than twice the size of its US$5 trillion economy.

Even without the delay in the sales tax hike, the government is not doing enough to correct the structural problems that make it difficult to reduce debt, such as low growth, a shrinking population and rising welfare spending, Ogawa said.

“As long as Japan’s economy doesn’t grow, fiscal problems will not be solved,” he said. “There is still a lot more to do on the growth side.”

S&P’s sobering assessment and Moody’s downgrade are a negative for Abe, but his ruling coalition is expected to keep its lower house majority after the vote as the opposition is in disarray.

Abe’s party could still lose some seats, so analysts are set to focus on the extent of the losses and what steps Abe takes to revitalize his economic agenda.

Some economists are said to be concerned the Bank of Japan’s purchases of government debt via its quantitative easing could make the government complacent on fiscal policy because yields are kept very low, or in some cases even go into negative territory.

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