A senior official from Fitch Ratings said that the agency plans to downgrade Japan’s long-term credit rating during the first half of 2015.
“Our expectation is the rating will come down”, said Andrew Colquhoun, head of Asia-Pacific sovereigns at Fitch.
The warning came just several days after the government’s decision to postpone a sales tax increase until April 2017, which Fitch cited as the main factor in putting Japan on watch. Moody’s has already downgraded Japan’s grade from Aa3 to A1 for the same reason.
“We don’t think the environment is conducive for submitting a budget that offsets the delay to the sales tax hike,” explained Colquhoun.
Fitch analysts said that even though raising the sales tax would not reduce the Japanese deficit to a stable level by itself, delaying the measure adds to the country’s long-term risk.
Not implementing the tax increase means that Japan will almost certainly miss its goal of lowering the primary budget deficit to 3.3% of GDP by 2015.
The agency also gave Japan’s rising debt-to-GDP ratio, which is expected to reach 241% before the end of 2014, and the lack of a well thought out plan to lower the deficit by 2020 are reasons for its concern. Japan has the highest debt-to-GDP ratio of any country in the world.
Japan’s credit grade is currently A+, which is four notches below the highest possible rating of AAA. Fitch said that it is unlikely to downgrade Japan’s credit by more than one level.