Fitch Ratings has dropped the credit rating for Japan down to A+, adding that there is currently a negative outlook because of the continually rising government debt. Posted on Tuesday, Fitch’s rating reflects the growing risks that increasing public debt pose to Japan. Coming just after the news that for the 21st year in a row Japan has been ranked as the world’s largest creditor, Fitch reveals that the nation also has the highest the government held debt in the world, with expectations to be at 239% of the gross domestic product (GDP) by the end of this year.
The review by Fitch also highlighted their opinion that the government has been leisurely, at best, at attempting to control its massive debt. While its understandable that after last year’s earthquake and tsunami disasters the economy was in even worse shape than before, Japan has been lucky that its low-interest rates are working in its favor with borrowing and high reserves of foreign assets. However, this flexibility cannot last and can easily be disrupted by an unexpected shock.
While Japan ignored previous rating downgrades ten years ago, this could be last chance to turn things around. The country has the world’s oldest population, but the birthrate has also been in decline for year. Tokyo, with a 2010 population of 128 million, is predicted to drop to 87 million by 2060. Currently, taxes only cover half of the government’s total spending, while the rest is borrowed. If they don’t find a way to both curb the spending, and bring the debt back into balance, turnaround will become ever more unlikely.