TOKYO: Standard & Poor's warned on Monday it could lower Japan's sovereign rating if the economy expands less than expected or if public debt continues to grow, as the country's unpopular government struggles to win support for higher taxes.
The ratings agency affirmed its AA- rating on Japan with a negative outlook, but also warned that higher taxes wouldn't solve the structural problems that push up Japan's welfare spending and increasingly pressure state coffers.
Japan's debt burden is the worst among industrialised economies, and it may not be able to postpone dratsic spending cuts and aggressive tax hikes much longer as Europe's debt crisis threatens the global economy.
"We would also consider lowering the long- and short-term ratings if the government's debt trajectory remains on its current course or begins to erode the nation's external position," S&P said in a statement.
"On the other hand, we may revise the outlook to stable if the government were to implement robust and sustainable fiscal consolidation."
S&P and Fitch both rate Japan AA- with a negative outlook. Moody's Investors Service ranks Japan at the same level, at Aa3, but has a stable outlook.
All three agencies rate Japan three notches below the top AAA rating.
Japan's rating could fall if real gross domestic product growth per capita drops below S&P's forecast of 1.2 percent, according to the statement.
Late last year the ruling Democratic Party agreed a timetable on rises in the sales tax to pay for welfare spending. It said it would increase the 5 percent sales tax to 8 percent in April 2014 and then to 10 percent in October 2015.
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