Moody's Downgrades Japan Ahead Of Election

Japan's credit standing has been downgraded by a leading ratings agency, just two weeks before a national election.

Moody's reassessment of Japan's economy - seen by different measures as either the third or fourth biggest globally - is based on fears of "rising uncertainty" over the country's debt situation.

The agency also raised concerns about Prime Minister Shinzo Abe's faltering efforts to kick-start growth, with the election just two weeks away.

The US-based firm cut Japan's rating by one notch, to A1 from Aa3.

This comes after recent data revealed the economy sank into recession during the July-September quarter.

Consumer spending has slowed in Japan after a sales tax rise of 3% to 8% earlier in the year - the first rise in 17 years.

And last month Mr Abe announced that a second planned sales tax rise, set for late next year, would be delayed.

He called a snap election described as a referendum on his "Abenomics" growth plan.

However, observers said it was more likely aimed at consolidating his power ahead of a party leadership vote next year.

"The first driver for the downgrade ... is the rising uncertainty over whether the government's medium-term deficit reduction goal is achievable," Moody's said in a statement.

"And whether policymakers can overcome the tensions inherent in promoting growth while simultaneously stabilising and reversing the rising debt trajectory."

The yen fell to a seven-year low against the dollar after the downgrade was announced, before recovering slightly.

Preliminary GDP data last month showed Japan's economy shrank 0.4% in the third quarter, following a 1.9% contraction between April and June.

"Japan's deficits and debt remain very high, and fiscal consolidation will become increasingly difficult to achieve as time passes given rising government spending, particularly for social programmes associated with a rapidly ageing population," Moody's added.

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