Moody’s has cut Japan’s credit rating by one notch over rising doubts about its ability to reduce debt levels.
The decision by the ratings agency sent the yen to a seven-year low against the US dollar.
The downgrade comes less than a two weeks before a snap general election called by prime minister Shinzo Abe.
His economic stimulus policies and a decision to delay a second sales tax rise will be among the key campaign issues.
Tom Byrne, regional credit officer of Moody’s, said the downgrade was closely linked to Mr Abe’s decision to delay a sales tax rise due to be implemented in 2015. The move would make it more difficult for Japan to cut its budget deficit by 2020.
Moody’s also warned that efforts by the Bank of Japan to achieve its 2% inflation target through aggressive money printing, or quantitative easing, could make it more expensive for the government to borrow.
Japan’s rating has been reduced by one notch to A1 from Aa3 after the economy sank into recession during the third quarter.
The A1 rating is one level lower than China and South Korea, and four lower than the US and Germany, which both have the top Aaa rating.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.