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S&P
cut its rating on Japan by one notch from AA- to A+, which is
four notches below its top rating AAA. The agency raised its
outlook from negative to stable.
It was the first Japan downgrade by S&P since January 2011 and
came 4-1/2 years after it last lowered its outlook from stable
to negative.
The downgrade brings its Japan rating into line with rival
ratings agency Moody's Investors Service, which downgraded Japan
to A1 in December last year. Fitch Ratings cut its rating on
Japan by one notch to A in April.
The yen <JPY=> shrugged off the lowering of the credit rating.
It briefly fell but then regained ground.
"We believe the likelihood of an economic recovery in Japan
strong enough to restore economic support for sovereign
creditworthiness commensurate with our previous assessment has
diminished," S&P said in a statement.
It added that "Despite showing initial promise, we believe that
the government's economic revival strategy - dubbed 'Abenomics'-
will not be able to reverse this deterioration in the next two
to three years."
The world's third-largest economy shrank in April-June and
analysts expect any rebound in July-September growth to be
feeble as private consumption remains sluggish and China's
slowdown dampens prospects for a solid recovery in exports.
Japan aims to return to a primary budget surplus in fiscal 2020
and then lowering the debt-GDP ratio, which is the worst in the
world at around twice the size of the country's $5 trillion
economy.
The S&P downgrade came the day after the Bank of Japan stood pat
on policy.
BOJ Governor Haruhiko Kuroda voiced confidence that the economy
can weather the hit from China's slowdown and weak demand in the
rest of Asia, suggesting that he sees no immediate need to
expand stimulus further.
But he reiterated the central bank "will not hesitate" to deploy
more support if Japan's recovery and the BOJ's 2 percent
inflation target are threatened.
(Editing by Richard Borsuk)
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