World Economy

Moody's downgrades Japan as concerns grow

Fears over the future of Japan's economy are growing – and Moody's, the credit ratings agency, reflected this on Monday by cutting its credit rating to A1 from AA3.

The news came just after the country's main stock market, the Nikkei, closed at a seven-year high.

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Has Abenomics failed?
Has Abenomics failed?

Increased "uncertainty" over whether Japan Prime Minister Shinzo Abe can achieve his deficit-cutting goals, and "the timing and effectiveness of growth enhancing policy measures" have made Japanese government debt riskier in the medium term, analysts at Moody's said in a release. They added that the outlook for the rating was stable.

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Abe swept into power two years ago, and was hailed as a savior because of his plan to reinvigorate Japan's moribund economy - known as "Abenomics".

Tomohiro Ohsumi | Bloomberg | Getty Images

The three main pillars of Abenomics are: a large fiscal stimulus, more aggressive monetary easing from the Bank of Japan, and structural reforms to the country's economy. Japan has been in a deflationary spiral for two decades, and it remains to be seen whether Abenomics can shake it out.

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Abe has called a snap election for December 14, in an effort to secure another four years to see his policies through.

However, his popularity seems to be in decline. Japan's economy is now back in recession after gross domestic product (GDP) shrank by 0.4 percent in the third three months of the year, on a quarter-on-quarter basis.