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Reflated economy must be Japan’s priority, claims Moody’s
The outlook for Japanese sovereign debt would improve if the Bank of Japan (BoJ) took measures to reflate the economy, according to rating agency Moody's Investors Service. As the BoJ decides on a new governor to replace outgoing Masaru Hayami in March, there is doubt about the commitment of prospective candidates to pursuing an aggressive policy to tackle deflation.
Moody’s said reflating the economy, while not a panacea, would reduce Japan’s problematic and growing debt burden.
The agency said it would lead to a rise in domestic gross national product that, supported by other policies, would "lead to deficit reduction as a percentage of GDP". Last year, the rating agency downgraded Japanese sovereign debt to A2.
While Moody’s added that failing to appoint a recognised inflation-fighter would not further harm the rating, the agency believes rigid adherence to present policies is not viable, and that breaking the cycle of deflation is critical. Figures released yesterday indicate that money supply growth in December had slowed to the lowest level in two years.
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