On Monday, Japan’s Fitch Rating dropped coinciding with Prime Minister Shinzo Abe’s visit to the United States. This drop in the county’s Fitch Rating reflects domestic concerns about a growing debt and choices to delay increasing sales tax. This week Abe will be meeting with President Barack Obama to discuss changes to the two nations’ defense agreement and he will address congress in an effort to strengthen the Tran-Pacific Trade Partnership that may come to include Japanese bullet trains.
Japan’s Fitch Rating lowered from an A to an A- this week while Abe is visiting the U.S. The lowering of the nation’s Fitch Rating has been issued because Japan’s current public debt is two times the amount of the their annual gross domestic product. Fitch projects, if serious changes do not occur such as increasing sales tax, by the end of 2015, the ratio of Japan’s gross government debt to their GDP will rise to 244% of their GDP. Fitch has identified the growth in government debt as the nation’s primary fiscal weakness.
Other financial firms like Moody’s Investor Service have also lowered Japan’s credit rating. This move was also in response to Abe’s insistence of delaying the sales tax increase. These ratings are indicative of the nation’s international financing strength but most of their bonds are held domestically so these shifts in credit should not have a huge impact on the yen. This is reflected by the little change in the yen against the dollar after the Fitch Rating was released. Before the Fitch credit release the dollar was held against the yen at ¥119.13, and following the negative release, it only changed to ¥119.19.
The position of PM in Japan has been a difficult one to keep. During Obama’s first three years in office, four PMs came and left from that office. Abe, while feeling some heat for his fiscal policy, has now held the seat long enough to get comfortable. This week he will attend a State Dinner with Obama where there is expected to 300 in attendance. Also, his speech in front of a joint Congress will be the first time a Japanese PM has given such a speech. This visit to Congress could prove to be an important part of his fiscal recovery plan.
The U.S. and Japan have been locked in trade negotiations relating to rice and American cars. One big deal that Abe hopes to promote during this visit is that of providing bullet trains for U.S. railways. It has long been acknowledged that U.S. railways are need of a revamp. Amtrak is America’s beloved mode of rail travel, but bullet trains cross long distances much quicker.
Perhaps more importantly, Abe and Obama will negotiate a loosening of their defense deal. This is a sensitive subject as some still feel Abe should be apologizing for Japan’s World War II aggressions, but with Korea and China making their military known, Japan may need leniency on their military programs in order to maintain their strength in the region.
The lowering of Japan’s Fitch Rating during the PM’s visit to the U.S. may only be a blip on the nation’s credit score prior to opportunity for economic growth. However, this will not be certain until after PM Abe’s week-long visit, a visit that has only just begun.
By Joel Wickwire
Washington Street Journal
Photo by Ash Carter’s Flickr Page – Creativecommons Creative Commons Flickr License
Photo by MIKI Yoshihito’s Flickr Page – Creativecommons Creative Commons Flickr License