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Japan’s debt rating has been cut by the rating agency Moody’s due to their worries about its deficit and levels of borrowing. Despite having its rating cut from Aa2 to Aa3, Japan’s position remains secure according to Moody’s. As the third largest economy in the world, Japan’s level of public debt is one of the highest and this has not been helped by unforeseen events such at the earthquake earlier this year and the financial crisis occurring around the world.

The Japanese economy is in recession presently and the last three quarters in a row have seen it shrink increasingly. According to figures produced by the government, its economy shrank at a rat of 1.3% in the second quarter of the year, an increase on the 0.3% rate in the three months previous. Although this rate of contraction is not as bad as a lot of analysts feared, concerns are growing as Japan will still have to borrow and spend much more to recover fully from the tsunami.

The disaster has had a domino effect on the Japanese economy as it resulted in a decline in both corporate and consumer spending which will consequently lead to a reduction in the amount of taxes collected and therefore the government’s budget.

In addition, the damage to the nuclear power plant Fukushima Daiichi caused by the tsunami, as led to problems with the country’s electricity production to the point where the government has had to implore people to ration the amount of electricity they use. It is feared that the doubts over Japan’s supply of power will result in both the public and private sectors delaying or avoiding investment.

The Japanese government has publicised their aim to once again be profitable in eight years. Moody’s however has claimed that this is overly ambitious.

In the last five years there has been five different Japanese prime ministers and Moody’s has suggested that this has been detrimental to Japan’s economic recovery as no long term strategies have been put into play. Additionally, the current prime minister is likely to resign shortly which may have been a trigger for the rating cut.

About The Author

Lee Murphy

MAAT and ICPA accountant, with a passion for making accountancy and bookkeeping accessible. Other interests include cloud-based software development for web and mobile access, keeping fit, reading, and entrepreneurship.

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