Japan

Nevertheless, the higher government bond yields will add to the challenge of returning the general government deficit to pre-COVID levels. Social spending will continue to climb as more of Japan's population reaches retirement. And the government has committed to raising defense spending in view of increasing geopolitical risks. The stable outlook reflects our expectations of steady trends in Japanese sovereign credit metrics on the back of a relatively gradual economic recovery. Over 2023-2025, we expect Japan's real GDP growth to average 1.3% annually. The modest pace of economic recovery will likely also slow the momentum of government revenue growth, while spending pressures on social services and national defense will continue to grow. We expect these factors to keep annual general

...Institutional and economic profile Flexibility and performance profile --Japan's diversified and wealthy economy underpins the government's credit standing. --The free-floating yen's reserve currency status supports Japan's credit quality. --Real GDP growth of nearly 2% in fiscal 2022 will be followed by modest expansions averaging 1.3% annually over the next three fiscal years --Current account surpluses in the next three to four years should continue to augment Japan's very strong external financial metrics, despite rising oil and commodity prices. --The premium placed on consensus in reaching policy decisions hinders timely policy responses to external and domestic challenges at times --Fiscal deficits should narrow in the next few years but will remain above pre-pandemic levels. We expect the government's net debt burden to remain close to 165% of GDP in the next three to four fiscal years....

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