Moody’s slashes Japanese credit rating to ‘A1’

Credit ratings agency Moody’s has cut Japan’s credit rating, a setback to Prime Minister Shinzo Abe, a day before he begins campaigning for an election that he wants to focus on the economy.

Moody’s cut the rating for the world’s third-biggest economy one level to A1, the same as Bermuda, Israel, Oman, and the Czech Republic. The yen dropped to a seven-year low, then reversed the decline, while Japanese government bonds (JGBs) were little changed.

Moody’s cited uncertainty over whether Japan will achieve its deficit-reduction goals and succeed in boosting growth, two weeks after Abe postponed an increase in sales tax.

The Bank of Japan is buying record amounts of JGBs issued by a government that is already burdened by the world’s heaviest public debt load.

“This serves as a good reminder to Japanese voters that the country’s fiscal situation is terrible,” said Kazuhiko Ogata, chief Japan economist at Credit Agricole.

The cut was the first downgrade for Japan by one of the top-three ratings firms since Abe came to power in December 2012. Moody’s had rated Japan in line with South Korea, Saudi Arabia, and Taiwan before yesterday’s decision.