Global ratings agency, Standard & Poor’s (S&P), have warned that it could lower Japan’s sovereign rating if the economy expands less than predicted. 

Japan currently has an AA- rating, but with a negative outlook this could easily be downgraded. The ratings agency has warned that Japan could also be downgraded for an increase in public debt. This follows the unpopular move by the Japanese government to introduce higher taxes. S&P warn this will not solve the structural problems the country has though, putting further pressure on public spending. 

Japan’s debt is mounting drastically and is the heaviest amongst industrialised economies. The proposal for drastic spending cuts and aggressive tax hikes will have to come in force much sooner than anticipated as the Euro debt crisis threatens the global economy. 

S&P is just one of the three major ratings agencies which all rate Japan three points below the top rating of AAA. Both S&P and Fitch have rated Japan with a negative outlook, yet Moody’s claims the country’s outlook is stable. 

“We would also consider lowering the long- and short-term ratings if the government’s debt trajectory remains on its current course or begins to erode the nation’s external position,” an S&P statement claims. 

“On the other hand, we may revise the outlook to stable if the government were to implement robust and sustainable fiscal consolidation.” 

Japan’s aging population is taking its toll on the country’s welfare costs, the rating agency claims, suggesting that higher taxes will be a short-term solution to a long-term problem. 

Transfer Money to Japan

If you are looking to invest in Japan, think carefully about how you will be transferring money to Japan. Foreign currency exchange rates quoted by banks are not usually the best way to send money abroad.

So if you are sending money to Japan – which you will inevitably have to do if you are looking to make a property investment, be sure to compare the market before you buy your overseas currency.