Japan faces downside risks to growth this year that could make it even harder for it to reach its fiscal consolidation goals, an analyst at ratings agency Moody's Investors Service said on Monday. "The growth outlook is one concern that we've always looked at. We've already incorporated into the rating the fact that Japan has very low potential growth. But growth performance itself, I think, is a little bit weaker than had been expected," Christian de Guzman, senior analyst of sovereign risk group, said in a telephone interview.
In December 2014, Moody's downgraded Japan's sovereign debt rating by one notch to A1 with a stable outlook, citing rising uncertainty over the country's ability to meet its debt-reduction goals. Moody's currently projects Japan to grow 1 percent in the 2016 calendar year, but that forecast faces both domestic and external uncertainties, he said.
"Given the recent performance of the past couple quarters, there is some downside risk to that projection," de Guzman said. Recent discussions in Japan's parliament over whether to delay a sales tax hike scheduled for April 2017 have brought to light another potential risk. "We did end up taking a negative rating action the last time the last sales tax was delayed. At the same time, I don't think we want to ignore the fact that there have been some good things that have been happening over the past couple of years," said de Guzman.
Prime Minister Shinzo Abe's decision in late 2014 to delay a sales tax hike to 10 percent from 8 percent that had been scheduled for 2015 made it more difficult for Japan to eliminate the primary budget deficit in fiscal 2020, an important fiscal consolidation target. "As it stands, it's already a very difficult path to get there, even with the tax hike next year. It would be more difficult to do so without it," the Moody's analyst said.
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