巴黎人娱乐城

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巴黎人娱乐城 - Hong Kong - 25 Mar 2022: 巴黎人娱乐城 Ratings has revised the Outlook on Japan's Long-Term Foreign-Currency Issuer Default Rating (IDR) to Stable from Negative and affirmed the rating at 'A'.

A full list of rating actions is below.

Key Rating Drivers

Pandemic Receding, Debt Peaking: The revision of the Outlook to Stable reflects our rising confidence in the stabilisation of Japan's government debt ratio over the medium term, as uncertainty over the impact of the Covid-19 pandemic on the macroeconomic and fiscal outlook is gradually fading.

Structural Strengths, High Debt: Japan's 'A' ratings balance the strengths of an advanced, wealthy economy with correspondingly robust governance standards and public institutions, against weak medium-term growth prospects and very high public debt. The central bank's monetary strategy and the home bias of Japanese private-sector investors support the government's financing capacity. Persistent current account surpluses, a large net external creditor position and the yen's status as a reserve currency underpin strong external finances.

Growth Recovery: We forecast real GDP growth at 2.4% in 2022 (2021: 1.7%) and 1.8% in 2023, supported by loose fiscal policy, rebounding consumption and easing supply chain constraints to manufacturing and exports. All remaining Covid-19 restrictions were lifted in March, with infections well below their early 2022 Omicron peak, and booster vaccinations well underway. Still, a reopening to overseas tourists is unlikely before July Upper House elections. Geopolitical tensions will dampen recovery through higher commodity prices and lower global growth.

High Deficits Set to Narrow: We expect Japan's general government (GG) deficit to narrow to 7.9% of GDP in the fiscal year ending March 2022 (FY21), from 10% in FY20, reflecting some easing of spending and strong performance of tax revenue. The FY21 deficit reflects about 4.6% of GDP in pandemic-related spending across the contingency reserve and the December supplementary budget, which can be spent in FY21 and FY22.

We forecast a narrowing of the GG deficit to 4.3% of GDP by FY23, assuming further supplementary budgets to support the recovery and other government priorities even as pandemic-related spending is gradually phased out. Japan's Cabinet Office expects the deficit to fall to 1.4% in FY23 in its baseline scenario.

Record Debt Level: We expect Japan's GG debt to remain broadly stable over the next few years after rising to 248% of GDP in FY21, from 245% of GDP in FY20 and 223% of GDP in FY19. In FY22 and FY23, as Japan's economy closes its output gap, higher nominal growth will support the debt dynamics while the primary fiscal deficit narrows. Narrower primary deficits after FY23 will keep the debt trajectory stable even as the economy reverts to a relatively low potential growth rate of 0.7% (according to 巴黎人娱乐城 estimates).

Over the longer term, rising costs related to aging could make debt stabilisation challenging without major reforms to overhaul the social security system or raise growth.

Broad Fiscal Policy Continuity: Prime Minister Kishida has articulated a vision for a "New Form of Capitalism", focusing on innovation, digitalization, economic security and distribution. The fiscal impact of this has so far been limited to a 1.5% of GDP allocation in the December supplementary budget. The implications for the medium-term fiscal path may become clearer after the July elections.

In January, the government reaffirmed its commitment to achieving central government primary balance by FY25 (FY21: deficit of 7.7% of GDP, according to 巴黎人娱乐城 forecasts). However, it has not yet identified a set of fiscal policies that would deliver on this target, in our view.

Inflation Outlook Still Subdued: Higher energy prices and yen depreciation have pushed up inflation, which we forecast at 1.8% in 2022 (2021: -0.2%). Excluding policy-driven mobile phone charge cuts last year, some core inflation measures were close to 2% yoy in early 2022. Even so, domestic inflationary pressures remain largely contained, despite some pick-up in inflation expectations. Government initiatives to accelerate wage growth create some limited upside for inflation. Energy prices could drag on inflation in 2023.

Ultra-Loose Monetary Policy: The Bank of Japan (BoJ) is likely to maintain its loose monetary policy over the medium term, with a policy rate of -0.10%, yield curve control (currently targeting a 10-year yield of 0%), and quantitative and qualitative easing. This is despite a recent change to its inflation risk assessment. BoJ's holds about 45% of outstanding government bonds and bills, underpinning the government's financing flexibility. BoJ's large balance sheet, in particular its holdings of exchange-traded funds, could pose future policy challenges.

Strong External Finances: Japan is a large net external creditor to the rest of the world and has run structural current account (CA) surpluses in recent decades, underpinned by income from investments abroad. We forecast the CA surplus to widen to 2.9% of GDP in 2022 and 3.4% of GDP in 2023, from 2.8% of GDP in 2021, as exports increase amid easing supply chain constraints, despite a higher energy import bill.

Japan has an ESG Relevance Score (RS) of '5[+]' for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. Theses scores reflect the high weight that the World Bank Governance Indicators (WBGIs) have in our proprietary Sovereign Rating Model. Japan has a high WBGI ranking at the 88th percentile, reflecting its long record of stable and peaceful political transitions, well established rights for participation in the political process, strong institutional capacity, effective rule of law and a low level of corruption.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative rating action/downgrade:

- Public Finances: Expectations of a persistent rise in the government debt/GDP ratio over the medium term, for example due to a more pronounced and longer period of fiscal loosening.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

- Public Finances: Confidence in the government?s ability to implement fiscal consolidation sufficient to place the government debt/GDP ratio on a downward path over the medium term.

- Macroeconomic: A sustained improvement in real GDP growth prospects and restoration of significantly positive inflation dynamics resulting, for example, from implementation of structural reforms to boost medium-term growth potential.

Sovereign Rating Model (SRM) and Qualitative Overlay (QO)

巴黎人娱乐城's proprietary SRM assigns Japan a score equivalent to a rating of 'A' on the Long-Term Foreign-Currency (LT FC) IDR scale.

巴黎人娱乐城's sovereign rating committee did not adjust the output from the SRM score to arrive at the final LT FC IDR.

巴黎人娱乐城's sovereign rating committee removed the -1 notch adjustment on 'Public Finances', reflecting its assessment that the risks around Japan's debt trajectory are sufficiently captured in the SRM through government debt, interest service and fiscal balance indicators.

巴黎人娱乐城's sovereign rating committee removed the +1 notch adjustment on 'External Finances', reflecting its assessment that the benefits of Japan's external balance sheet and flows are sufficiently captured in the SRM, including through the reserve currency flexibility indicator.

巴黎人娱乐城's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR. 巴黎人娱乐城's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.

Best/Worst Case Rating Scenario

International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit /site/re/10111579.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Japan has an ESG Relevance Score of '5[+]' for Political Stability and Rights as WBGIs have the highest weight in 巴黎人娱乐城's SRM and are therefore highly relevant to the rating and a key rating driver with a high weight. As Japan has a percentile rank above 50 for this governance indicator, this has a positive impact on the credit profile.

Japan has an ESG Relevance Score of '5[+]' for Rule of Law, Institutional & Regulatory Quality and Control of Corruption as WBGIs have the highest weight in 巴黎人娱乐城's SRM and are therefore highly relevant to the rating and are a key rating driver with a high weight. As Japan has a percentile rank above 50 for the respective governance indicators, this has a positive impact on the credit profile.

Japan has an ESG Relevance Score of '4[+]' for Human Rights and Political Freedoms as the Voice and Accountability pillar of the WBGIs is relevant to the rating and a rating driver. As Japan Japan has a percentile rank above 50 for this governance indicator, this has a positive impact on the credit profile.

Japan has an ESG Relevance Score of '4[+]' for Creditor Rights as willingness to service and repay debt is relevant to the rating and is a rating driver for Japan, as for all sovereigns. As Japan has a record of more than 20 years without a restructuring of public debt as captured in our SRM variable, this has a positive impact on the credit profile.

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or to the way in which they are being managed by the entity. For more information on 巴黎人娱乐城's ESG Relevance Scores, visit .

Additional information is available on

APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

• Country Ceiling Model, v1.7.2 (1)
• Debt Dynamics Model, v1.3.1 (1)
• Macro-Prudential Indicator Model, v1.5.0 (1)
• Sovereign Rating Model, v3.12.2 (1)

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