From The Wall Street Journal:

Moody’s Investors Service downgraded Japan’s government debt rating Monday, highlighting the challenges facing Prime Minister Shinzo Abe as he tries to stoke economic growth.

In explaining its move, Moody’s cited “heightened uncertainty” over Japan’s ability to cut its fiscal deficit after Mr. Abe decided last month to delay an increase in the national sales tax scheduled to take effect in October 2015.

The decision to delay the tax increase poses risks to fiscal consolidation and, over the longer term, to debt affordability and sustainability, Moody’s said in a statement.

Moody’s downgraded Japan’s debt by one notch to A1 from Aa3, which puts Japan on par with Israel and the Czech Republic. It was the first downgrade of Japan by a major rating firm since 2012, and the first by Moody’s since 2011.

Mr. Abe decided to postpone the tax rise after a similar increase in April contributed to two consecutive quarters of contraction in Japan’s economy. Some of his closest aides had argued that another increase would endanger the government’s goal of ending 15 years of deflation.

Moody’s acknowledged that delaying the tax rise “could have merit” if growth and tax revenues rise as a consequence, but said a second factor in its downgrade was uncertainty over whether the government’s growth policies would work in the medium term.



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