S&P Global Ratings affirmed Japan’s A+ long-term and A-1 short-term sovereign credit ratings. However, outlook is downgraded from positive to stable as the “weak government finances have deteriorated further in fiscal 2020 owing to the COVID-19 pandemic”.
“The fiscal position should improve materially once the outbreak recedes and economic growth returns. Nevertheless, we expect the fiscal deficit will remain relatively high” in fiscal 2021 through 2023, it said.
However, “should real interest rates increase sharply at some point, this would severely strain the government’s debt dynamics,” it added. “This could occur if investors demand a higher risk premium and push up nominal interest rates. But we believe the greater risk is from renewed and persistent deflation.”
