Here's Why Moody's Downgraded Japan

In a surprise move today, rating agency Moody’s downgraded Japan’s credit rating on Monday, just minutes after the NIKKEI closed at its yearly high. Though one doesn’t know the magnitude of the impact this news will create on the Japanese stock market tomorrow, Japan-specific ETFs like the iShares MSCI Japan ETF EWJand WisdomTree Japan Hedged Equity FundDXJ opened strong and were holding up rather well on Monday.

CNBC's Phil Han recently explained the reasons behind Moody’s downgrade of Japan.

“It’s the third biggest economy in the world, but its more bad news for Japan. Credit rating agency Moody’s has just cut the country’s rating from Aa3 to A1, the rating is just the fifth best investment grade possible. It’s the type of headache that Japanese Prime Minister, Shinzo Abe, just doesn’t need,” Han said.

“ Moody’s said the downgrade was because of heightened uncertainty and deficit reduction goals and the timing of growth enhancing measures. Abe swept into power two years ago and promised to revive the struggling economy with his three arrows of reform, better known as Abenomics.”

“A planned sales tax rise in April send the third quarter into recession, while the Yen also continued its downward spiral. Prime Minister Abe has called a snap election for December 14, to secure another four years in power, but as more and more Japanese start to feel a pinch, it culd be game over for Abenomics.

Shares of MSCI Japan ETF were recently trading at $11.70, marginally up by 0.69%, while shares of WisdomTree Japan Hedged Equity Fund were trading at $55.63, up 3.26%.