Because of these problems, Moody’s researchers cut their rating on the third largest economy in the world as measured by gross domestic product (GDP):
Moody’s Investors Service today downgraded the Government of Japan’s debt rating by one notch to A1 from Aa3. The outlook is stable.
The key drivers for the downgrade are the following:
1. Heightened uncertainty over the achievability of fiscal deficit reduction goals;
2. Uncertainty over the timing and effectiveness of growth enhancing policy measures, against a background of deflationary pressures; and
3. In consequence, increased risk of rising JGB yields and reduced debt affordability over the medium term.
The A1 rating reflects the government’s significant credit strengths, including a large, diverse economy with a strong external position, very high institutional strength and a very strong domestic funding base.
The stable outlook reflects the broad balance between upside risks including significant fiscal consolidation and a resumption of economic growth, and downside risks including intensification of deflationary pressures and loss in economic momentum.
The rating action does not affect Japan’s Aaa foreign currency, local currency country and bank deposit ceilings. Those ceilings act as a cap on ratings that can be assigned to the obligations of other entities domiciled in the country.
The ratings change comes on the heels of news from Markit that PMI contracted in November. By most measures, Germany ranks fourth in the world based on GDP.
That means that two huge countries are pulling the world in the direction of recession.
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