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Credit rating agency Standard & Poor (S&P) slashed Japan's rating by one notch from AA- to A+. S&P sighted economic conditions as the main reason behind the move.
- The downgrade provided further evidence that Abenomics (named after Japan's Prime Minister Shinzo Abe), who after coming to power influenced Bank of Japan (BOJ) to starts its massive asset purchase program and increased sales tax from 5% to 8% last year is losing its charm.
- All these moves were called part of Abenomics by economists and market participants. These moves were introduced at one hand to improve Japan's fiscal position and to bring the country out of deflation.
- Japan has the worst debt to GDP ratio among developed world, which stands at 230%.
According to S&P, it views Abenomics to be lesser effective when it comes to reviving growth in Japan. It expects Japan's growth to remain subdued over coming next two-three years.
Though downgrade wasn't a surprise since outlook was negative, Yen has further weakened to 120.5 against Dollar.
Though preference for liquidity might keep Yen well bid heading into FOMC, it might lose its appeal once that is taken care of.
