Standard & Poor's cut Japan's sovereign debt rating by one notch on Thursday, saying that the nation "lacks a coherent strategy" to cope with a debt level that it predicts will only peak in the mid-2020s. The yen fell in response, although world markets showed muted reaction to the news. The euro benefited, responding also to tough talk from the European Central Bank (ECB) as tighter monetary restrictions loomed.
Japan's debt rating now stands at AA-, according to a Reuters report, which is one notch below both Moody's and Fitch's ratings. S&P pointed to Japan's aging population as one factor in its decision, since rising social welfare costs will increase the nation's debt load. Currently Japan's debt is double its $5 trillion economy and on the rise.
In a statement, S&P said in part about the decision, "In our opinion, the Democratic Party of Japan-led government lacks a coherent strategy to address these negative aspects of the country's debt dynamics, in part due to the coalition having lost its majority in the upper house of parliament last summer."
