S&P worried by Japan's radical monetary policy

(Source: Reuters)

Ratings agency Standard & Poor's has said that there is more than a one in three chance that it will downgrade Japan. This follows the beginning of a new era of radical monetary policy by recently appointed Bank of Japan governor Haruhiko Kuroda. Japan's sovereign debt is currently rated AA-.

The continuing prospect of a downgrade arises from risks associated with recent government initiatives and uncertainty of their success.

Japanese Prime Minister Shinzo Abe's plan to lift Japan out of deflation and spur economic expansion--known as "Abenomics"--has three pillars: bold monetary easing, fiscal efforts to spur growth, and a strategy to induce private sector investment.

Of the three engines that Mr. Abe foresees reinvigorating the nation's economy, so far only one, monetary easing, has kicked into full gear. The others remain idle.

Many are concerned that after 25 years of borrowing and with a debt to GDP ratio of over 200 per cent, the doubling of asset purchases recently put in place could see a sharp rise in Japan's borrowing costs.