Fitch Lowers Japan's Rating Outlook

japanflag nov14 29jul20 lt

Fitch Ratings downgraded Japan's sovereign rating outlook citing the sharp economic contraction caused by the coronavirus pandemic.

The outlook on 'A' rating was lowered to 'negative' from 'stable'.

The agency observed that a downturn in consumer spending and business investment has been exacerbated by a steep decline in exports associated with weak external demand.

The economy is forecast to contract 5 percent in 2020, before rebounding to 3.2 percent growth in 2021 due partly to the low base effect. However, the economy would not recover to its pre-pandemic level until the fourth quarter of 2021, Fitch said.

"The Negative Outlook indicates that the higher debt ratio and downside risks to the macroeconomic outlook will nevertheless exacerbate the challenge of placing the debt ratio on a downward path over the medium term," the agency added.

According to Fitch, Japan's gross general government debt ratio will rise to around 259 percent of GDP this year, and stabilize just above 260 percent in 2021-22, before turning to a gradual downward path.

The rating agency projected the deficit to narrow to 10.9 percent of GDP in 2021 and 5.3 percent in 2022, as the recovery gradually solidifies and the authorities seek to return to their path of debt reduction.

Last month, S&P Global Ratings had lowered its outlook on Japan's rating to 'stable' from 'positive' citing government spending amid pandemic.

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