Credit Rating for Japan Downgraded to AA-

January 28, 2011 Updated: January 29, 2011

Standard & Poor’s took Japan’s credit rating down a notch on Thursday—the first time the Asian country's rating has been downgraded since 2002.

The country’s credit rating was slashed from “AA” to “AA-” by the U.S.-based credit appraiser, who said Japan needs to take more action to repair its finances and repay its debt.

“Standard & Poor's expects Japan's fiscal deficits to remain high in the next few years, which will further reduce the government's already weak fiscal flexibility,” the company said, referring to the credit rating downgrade.

S&P noted that Japan’s downgrade is in part due to its government debt ratio, which it said will continue to rise further.

Meanwhile, the rating agency foresees governmental debts dropping only “modestly” in 2013 to 8 percent of GDP from 9.1 percent of GDP, the company said. Other factors like deflation, an unchanged nominal economic size, and the country’s aging population pose challenges for its credit outlook.

“In our opinion, the Democratic Party of Japan-led government lacks a coherent strategy to address these negative aspects of the country's debt dynamics,” said S&P.

This was the first downgrade for a G7 nation since Italy in 2006.