Standard & Poor’s (S&P) has today cut Japan’s credit rating from AA to AA-, the first time in nine years such measures have been taken.
The credit rating agency cited the country’s mounting debt worries for the downgrade.
Japan’s debt currently stands at almost twice the country’s annual economic output – this compares with 136.8% for Greece and 112.7%.
Japanese debt is the highest of any industrialised nation.
In a statement, S&P said: “The downgrade reflects our appraisal that Japan’s government debt ratios – already among the highest for rated sovereigns – will continue to rise further than we envisaged and will peak in the mid 2020s.”
Following the announcement, the yen fell against the dollar to 83.20 yen from 82.12 yen.
In related news today, Japanese exports rose for the second consecutive month in December, due to strong demand from China.
Exports grew 13% in December on an annual basis – higher than the 9.1% growth reported in November.
Exports to China rose by 20.1%, while those to the US grew 16.5%.
Earlier this week, official figures revealed Japanese core consumer prices fell 0.5% in December compared with a year ago – representing the 22nd consecutive monthly decline that the economy has been in deflation.
A short period of deflation (where prices fall rather than increase) could be a serious threat to the economy because it deters consumers and businesses from spending in expectation of falling prices.