Moody's cuts Japanese banks' ratings
2014-12-03 12:05:29
International ratings agency Moody's continued its downgrading spree in Japan on Tuesday, cutting its credit rating on five Japanese commercial banks to A1 with a stable outlook from Aa3.
The ratings cut hit Bank of Tokyo-Mitsubishi UFJ, Mitsubishi UFJ Trust and Banking and Sumitomo Mitsui Banking, in addition to regional lenders Shizuoka Bank and Chugoku Bank.
In two separate statements, Moody's also said it was downgrading life insurance companies Nipon Life and Sony Life from Aa3 to A1 with a stable outlook, as well as placing SMBC Nikko Securities under review for downgrade.
The agency said the move was "in response to [its] downgrade of the Government of Japan's rating to A1 with a stable outlook from Aa3" a day earlier.
Rising uncertainty
The actions of the last 48 hours reflect "rising uncertainty" over the government's deficit reduction targets and the overall health of the nation's economy.
On Monday, the agency's analysts expressed doubts about Prime Minister Shinzo Abe's ability to achieve his goals amid "tensions" inherent in promoting growth while, at the same time, reversing the "rising debt trajectory."
Moreover, they questioned Abe's ability to push through structural reforms, which they said were "crucial to achieve fiscal consolidation." The prospect of Japan failing these two policy goals was raising questions about the "affordability and sustainability" of Japan's huge debt load Moody's added in a statement.
Unsustainable debt
Japanese sovereign debt is among the highest in the world, amounting to more than twice the size of the economy. After two decades of stagnating growth, Shinzo Abe changed economic policy in 2010 under a program dubbed "Abenomics." The program included massive government spending and accommodative monetary policy by the country's central bank.
According to a recent report by the International Monetary Fund (IMF), the program had caused Japan's debt to skyrocket to 245 percent of gross domestic product (GDP) in 2014 which would only start to decline under the "most favorable economic and fiscal reforms."
Under efforts to rein in spiralling debt, Abe raised sales tax from 5 percent to 8 percent in April, which, however, led to a sharp decline in growth. Preliminary GDP data last month showed Japan's economy shrank 1.9 percent between April and June, which was followed by 0.4 percent contraction in the third quarter.
As a result, Abe postponed a further hike in sales tax to 10 percent, scheduled for 2015, and called snap elections to ensure popular support for his economic policy.