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Moody’s Downgrades Japan Sovereign-Debt Rating

Moody’s Downgrades Japan Sovereign-Debt RatingMoody’s Downgrades Japan Sovereign-Debt Rating

Moody’s Investors Service on Monday cut the sovereign-debt rating on Japan to A1 from Aa3, but said the outlook is stable.

The ratings cut comes amid increased uncertainty over whether the government can meet its goals for deficit reduction, concerns over medium-term growth prospects – the third “arrow” of Abenomics – and Japan’s debt load, MarketWatch quoted Moody’s as saying in its press release.

“While monetary expansion has boosted domestic aggregate demand to some extent, the consumption tax increase on April, 1 2014 has exerted even more powerful downward pressure,” the ratings firm said.

However, even with the challenges currently facing the government, “Japan retains very significant credit strengths,” Moody’s said.

 Investment Rises

Japanese companies increased investment more than forecast in the third quarter, even as slumping consumption pushed the economy into a recession.

Manufacturers led a 5.5 percent gain in capital spending in the three months through September from a year earlier, beating the 1.8 percent median in a Bloomberg News survey. Corporate profits climbed 7.6 percent and sales increased 2.9 percent, according to finance ministry data released Monday.

The unexpectedly strong gain in domestic investment is a boost for Prime Minister Shinzo Abe as he campaigns for re-election on his economic growth strategy after Japan slipped into its fourth recession since 2008.

Abe’s been calling on companies to spend their cash hoards on investment and wages to pull the economy out of two decades of stagnation.

“Capital investment is gradually growing, with the level much higher than before the Abe government, but it’s just not that resilient yet,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “The public still doesn’t rate Abenomics positively because most people aren’t better off as prices are rising faster than wages.”

 Manufacturers Gain

Investment by non-manufacturers, which was 64 percent of the total, climbed 2.7 percent. Spending by real-estate companies rose 56 percent and investment by wholesalers and retailers climbed 11 percent.

Metals manufacturers increased purchases of construction materials and other equipment while electronics companies boosted spending for production of smartphone parts. Investment by electrical machinery makers rose as manufacturers including car companies spent more on factory automation.

Companies invested 9.4 trillion yen in the period, 47 percent less than the highpoint in the first quarter of 2007, based on comparable data back to 2001.

Monday’s figures will be used to revise third-quarter gross domestic product data, which showed the economy contracted 1.6 percent after shrinking 7.3 percent in the April-June period. The revised data is due Dec. 8.

Financialtribune.com