Fitch Maintains Japan's Credit Rating as Government Revises Fiscal Policy on July 27

According to Fitch, Japan's government on July 27 adopted a revised fiscal strategy that defers the primary balance surplus target and shifts focus to maintaining a declining trajectory for gross government debt over the next five years. The shift includes substantial fiscal investments in growth areas such as artificial intelligence and semiconductors.

Fitch expects Japan's debt ratio to continue declining during the five-year outlook period, though the rating agency warned that achieving debt reduction or stabilization over longer timeframes will become increasingly difficult. Real interest rate increases on Japanese government bonds pose the greatest risk to debt dynamics, particularly if market concerns about fiscal sustainability drive risk premiums higher.