Japan Gets Knocked Down

Moody’s Investors Service, Inc., announced yesterday that it was downgrading Japan’s sovereign debt rating, from Aa3 to A1.

The main reason cited was the Japanese government’s announced delay of an additional sales tax increase to 10% that was scheduled to go into effect next year. This was to be “Phase 2” of the recent increase in April this year which saw sales tax go from 5% to 8%.


This increase was crucial to Prime Minister Shinzo Abe’s “big picture” plan to get the economy growing and to stoke inflation, as Japan has been in a deflationary cycle for the past 15 years.

Without this increase, Japan’s ability to cut its deficit (as well as continue financing its debt) is now being called into question.

The last time Japan had its credit rating downgraded by Moody’s was in 2011.