Fitch cuts outlook on Japan after tax delay

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Ratings agency Fitch has kept its rating on Japan on hold at A, but cut the outlook in response to the delay in the country’s consumption tax.

Fitch said:

The Japanese government announced on 1 June that it had decided to delay a scheduled increase in the consumption tax from April 2017 until October 2019 (having already delayed the hike from the original date of October 2015), and did not identify any specific offsetting measures. The Outlook revision primarily reflects Fitch’s decreased confidence in the Japanese authorities’ commitment to fiscal consolidation.

It added that a downgrade could potentially follow in the event of…

  • Lack of measures to compensate for the fiscal impact of the delay in the consumption tax increase, or other policy measures that further undermine Fitch’s confidence in political commitment to fiscal consolidation
  • Weaker macroeconomic performance than Fitch expects for a sustained period, intensifying the challenge of stabilising the public finances
  • A sharp and sustained rise in real interest rates on government debt to a level that undermined debt sustainability
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