S&P Downgrades Japan Sovereign Credit Rating Outlook from 'Positive' to 'Stable'

[Image source=AP Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] As the Shinzo Abe cabinet in Japan plans to invest massive finances in measures against the novel coronavirus infection (COVID-19), credit rating agency S&P has issued a warning regarding fiscal soundness.

According to the Asahi Shimbun on the 10th, S&P downgraded the outlook for Japan's government bond credit rating from 'positive' to 'stable' the day before. The credit rating of Japan's government bonds was maintained at 'A+', the fifth highest grade out of 21 levels in total.

This downgrade in outlook is due to the Japanese government preparing a supplementary budget for COVID-19 response and deciding to finance all expenditure resources through government bonds. S&P evaluated that "Japan's fiscal stabilization has regressed" due to deficit bond issuance and expansion of national debt. It also suggested that if economic growth remains sluggish or deflation recurs, the credit rating itself may be lowered.

According to NHK broadcasting, the second supplementary budget bill is expected to pass the Japanese Diet on the 12th. This supplementary budget amounts to 31.9114 trillion yen (approximately 353.9 trillion won), making it the largest supplementary budget ever. With two rounds of supplementary budgets, Japan's new government bond issuance this year is expected to reach a record high of 90.2 trillion yen.

S&P forecasted that Japan's net debt-to-GDP ratio will rise sharply to 171% this year from 151% last year. Although deficits are expected to shrink from 2021 to 2023 as COVID-19 related expenditures cease, the ratio is expected to remain above pre-COVID-19 levels.

This content was produced with the assistance of AI translation services.