Standard & Poor's has warned that it might cut its sovereign debt rating on Japan for the first time since 2002, a move that highlights doubts about the fiscal health of the world's second-largest economy and the policies of its new Democratic party government.
The decision by S&P to change to negative the outlook on Japan's AA long-term rating comes amid heightened international wariness towards sovereign risk as government deficits surge in the aftermath of the global financial crisis.
The ratings agency put the seal on Tokyo's drive towards budget sustainability when it last raised its rating in 2007, but now says stronger action against “fiscal and deflationary pressures” could be needed to avert what would be a deeply damaging downgrade.