Japan’s sovereign credit rating has travelled along a downward trend over the last three decades, mainly due to the country’s subdued economic growth and deteriorating fiscal health. Furthermore, the COVID-19 pandemic has led to a rapid accumulation of fiscal burden. Could Japan’s sovereign rating be further downgraded after the pandemic? If so, how would this affect the Japanese economy? What should policymakers do to prevent a downgrade?
This working paper delves into the historical evolution of Japan’s sovereign credit rating over the past three decades; assesses recent rating dynamics during the COVID-19 pandemic crisis and Japan’s sovereign rating outlook; and discusses policy implications.