Japan has had its credit rating cut from AA to AA- by Standard and Poor’s (S&P) for the first time in nine years.
Despite being the world’s third largest economy, Japan has a public debt level of 196% of its $5 trillion (£3.1 trillion) GDP, second only to Zimbabwe globally.
Finance Minister Yoshihiko Noda has recently unveiled a new budget that proposes ¥92.4 trillion (£0.7 trillion) in spending.
S&P says Japan lacks a coherent strategy needed to address these financial liabilities. (article continues below)
Government fiscal deficits are expected to shrink by only 1.1% of GDP over the next two years, reaching an estimated 8.0% by 2013.
Along with persistent deflation, a fast-aging population was cited as a cause for concern as Japan’s social security related expenses currently comprises 31% of the government’s budget for 2011.
An aging and shrinking labour force led S&P to predict a 1% rate of medium-term growth.