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Japan Downgraded By S&P: What You Need To Know

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Japan Downgraded By S&P: What You Need To Know

  • Standard & Poor’s downgraded Japan’s credit rating from AA- to A+.
  • The firm justified the demotion as a sign of disapproval of Prime Minister Shinzō Abe’s economic strategy – often called Abenomics.
  • Shares of the iShares MSCI Japan ETF (NYSE: EWJ), WisdomTree Japan Hedged Equity Fund (NYSE: DXJ), DBX ETF Trust (NYSE: DBJP), and other Japan ETFs are down on Thursday trading.
  • Standard & Poor’s seems to be in some kind of downgrade spree. After last week’s demotion of Brazil’s sovereign credit rating to BB+, the firm has now cut Japan’s credit rating from AA- to A+.

    The demotion was framed as a condemnation of Shinzō Abe’s economic strategy, which has led to a deterioration of Japan’s sovereign “creditworthiness” over the past three or four years.

    “Despite showing initial promise, we believe that the government’s economic revival strategy – dubbed ‘Abenomics’ – will not be able to reverse this deterioration in the next two to three years,” S&P’s report added.

    Related Link: S&P Cuts Brazil To Junk: What It Means

    A recent Financial Times article explained, “The downgrade is unlikely to trigger any immediate turmoil in the Japanese government bond markets, which are driven by deflation and large-scale asset buying by the Bank of Japan.”

    However, the impact on Abe himself might be larger.

    Other Downgrades

    S&P was not the first to downgrade Japan’s debt rating. In April, Fitch demoted Japan to an A rating. Last December, Moody’s also cut Japan’s credit rating to A1 – which is equal to an A+ from S&P.

    However, these downgrades were based on other issues, like the country’s increasing public debt, low consumption and an imminent deflation.

    In fact, S&P also seems to agree with some of these issues. In a previous report, the firm expressed preoccupation regarding Japan’s “very weak fiscal position that the country’s ageing population and persistent deflation exacerbate.”

    Image Credit: Public Domain

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