Moody's: Japan policy stimulus will support growth, medium-term challenges remain

Moody's Japan K.K. has released its latest issue of Inside Japan, which says that persistent low economic growth and inflation in Japan (A1 stable) has prompted a shift toward greater monetary and fiscal accommodation, and led the rating agency to raise its forecasts for real GDP growth to 0.7% this year and 0.9% in 2017, following a 0.5% increase in 2015.

Moody's says the delay in the consumption tax hike and the implementation of additional fiscal stimulus, alongside the Bank of Japan's new monetary framework unveiled on 21 September, are the latest policy measures aimed at reviving economic growth and inflation, while providing room for structural reforms, such as increasing labor force participation.

But the positive impact of these structural reforms will be set against intensifying pressures on growth and fiscal expenditure from an aging population.

In the absence of a marked boost to growth from structural reform, we estimate that Japan's already high debt burden will further edge up over the next decade.

Moody's conclusions are contained in the latest edition of its "Inside Japan" publication. Moody's bi-annual compendium includes recent key research and commentaries published, as well as a list of recent rating actions across all sectors in Japan.

Moody's report also includes the press release on its affirmation of Japan's A1 sovereign rating on 30 August, which reflected (1) the slow but continuing progress in developing a policy and reform framework which could ultimately reflate the Japanese economy and reverse the rise in government debt and (2) its expectation that funding costs for the government will remain low and stable.

In addition to the sovereign update, Moody's compendium aggregates a selection of recently published sovereign, corporate finance, financial institution and structured finance key research pieces.