Japan PM defends "Abenomics" after Moody's downgrade

TOKYO - Japanese Prime Minister Shinzo Abe, gearing up for the Dec. 14 lower house election, defended his economic policy on Tuesday after Moody's Investors Service cut Japan's debt rating, saying foreigners' confidence in"Abenomics" remains solid.

Moody's on Monday downgraded Japan's sovereign debt rating by one notch to A1, citing rising uncertainty over the country's ability to hit its debt-reduction goal. That put Japan one notch lower than China and South Korea.

The move came less than two weeks before Abe seeks re-election in a snap poll he called after deciding to delay a second sales tax hike.

That decision, along with Abe's radical policy mix of monetary stimulus, fiscal spending and structural reform, will be among the key campaign issues. "The market took it very calmly. Long-term interest rates did not move, neither did share prices," Abe said on public broadcaster NHK.

"I believe foreign countries have high confidence on the strength of the Japanese economy, and Abenomics enjoys certain recognition." Two-year Japanese government bonds were flat on the day, while the yield on the current 10-year JGB added 1.5 basis points to 0.435 per cent. Japan's Nikkei share average eked out a 0.4 per cent gain to end at a seven-year high.

Abe's decision to delay by 18 months a sales tax increase to 10 per cent from 8 per cent may prove popular with voters, but some economists say it is now impossible to eliminate the primary budget deficit in the fiscal year 2020, an important fiscal consolidation target.

The delay may help the economy in the short term, but there is still no guarantee taxes will rise because the political dynamic could change after the election, Takahira Ogawa, director of sovereign ratings at Standard & Poor's, told Reuters.

Deputy Chief Cabinet Secretary Hiroshige Seko said Abe would present a specific fiscal consolidation plan by next summer and the government would continue to monitor the debt market and respond with appropriate measures if needed.