- `Abenomics has not changed mindsets,' De Guzman says
- Company remains `comfortable' with Japan's A1 rating outlook
The Bank of Japan’s quantitative and qualitative easing program is unlikely to reach its target of boosting inflation to 2 percent within its target time frame next year, according to Moody’s Investors Service.
“It would seem that the QQE program at the BOJ as well as the continued application of Abenomics has not changed mindsets,” Christian de Guzman, a senior analyst at Moody’s, said in a press briefing in Tokyo on Thursday. “Consumers continue to not spend, and corporates, despite very robust profitability, have not meaningfully increased their investment into Japan.”
The central bank last October expanded its stimulus program that Governor Haruhiko Kuroda introduced in April 2013 in a bid to push up inflation to its target. There may still be more room to further expand monetary easing, De Guzman said, although the “onus is now more on fiscal policy.”
It is too early to judge whether the three arrows of the rebooted economic strategy that Prime Minister Shinzo Abe announced last month -- a strong economy, child-care support, and social security -- will be successful, De Guzman said. When Abe took office in 2012, he announced an initial trio of monetary stimulus, flexible fiscal policy, and structural reforms.
“The risk in this environment is that the benefits of QQE are outweighed by the risks related to China’s slowdown,” Anne Van Praagh, a managing director for sovereign risk at Moody’s, said at the same briefing. “That’s a new dynamic, and we haven’t seen how the economy in Japan is going to respond.”
Moody’s said in separate reports last month that Japan’s slowing economic momentum threatened its fiscal consolidation, and a weaker savings bias may raise the risk for public debt. The rating company in August revised down its estimates for growth in the Group of 20 economies due to the slowdown in China, and said Japan’s gross domestic product would expand only around 0.5 percent this year.
Moody’s cut Japan’s credit rating to A1 in December, the same level as Bermuda, Estonia and Oman. That was followed by equivalent downgrades from Fitch in April and Standard & Poor’s last month. Moody’s remains “comfortable” with its stable rating outlook for Japan, De Guzman said.