Leading US credit rating agency Moody's Investors Service Inc. downgraded Japan's sovereign debt rating on Monday, citing uncertainty over the government's ability to achieve its debt-reduction goal.
Moody's lowered the long-term sovereign debt rating by one rank, from Aa3 to A1, which is the fifth highest of the firm's 21 ranks, and the same rating given to Oman, Estonia and the Czech Republic.
"The first driver for the downgrade is the rising uncertainty over whether the government's medium-term deficit reduction goal is achievable, and whether policy makers can overcome the tensions inherent in promoting growth while simultaneously stabilizing and reversing the rising debt trajectory," Moody's said in a statement.
"The second driver for the downgrade is the rising uncertainty over the government's ability to enhance medium term growth through structural economic reform," the agency said. It also pointed out the potential implications of the first two drivers for the affordability and sustainability of Japan's huge debt load.
It was the first downward by Moody's for such bonds since August 2011, when the agency cut the credit rating of Japan's government debt. The move could raise the government's borrowing costs in capital markets.
Moody's also said its outlook for the rating is "stable," citing Japan's large and diversified economy. Japan's public debt might exceeds 200 percent of annual gross domestic product (GDP). The world's third-largest economy contracted for two quarters in a row since the April sales tax hike, from 5 percent to the current 8 percent.
Prime Minister Shinzo Abe decided last month to postpone the second sales tax increase to 10 percent, originally set for October 2015, by 18 months until April 2017.