According to the Moody’s Investors Service, Japan must attain 3 percent of nominal economic growth annually to bring its swelling debt under control as its aim of doubling the 5-percent sales tax by mid-decade would not be enough to achieve fiscal rebuilding. Last Wednesday, Moody’s slashed Japan’s debt rating by one notch, from Aa2 to Aa3 as Japan’s government faces intricacies in reining in the world’s largest public debt burden. The agency said that it had no plans to amend the sovereign ratings for Japan in the next 12 to 18 months as it saw no changes in Japan's home-biased funding dynamics.

Moody’s Investors Service considered that the key to achieve economic growth is to increase productivity in the country by taking various supply side measures and by that the 3 percent target of nominal GDP growth would be in reach. Japan’s economy contracted after the March 11 earthquake and subsequent tsunami that destroyed the Northeast coastal area of the country and stimulated the world’s largest nuclear crisis since Chernobyl in 1986. Nowadays, Tokyo’s goal is to reach the 3 percent nominal growth and 2 percent real GDP growth by 2020, but such targets are insurmountable given that Japan’s growth over the decade up to the last global financial crisis was way below those levels.  In addition, Japan’s recovery momentum is struggling as the recent spike in Yen upset its export-reliant economy.

Japan’s officials are doing now the best policy action in order to recover from the recent disaster that will likely narrow the nation’s fiscal gap. In fact, Japan’s Finance Ministry divulged 100 Billion Dollars credit loan for companies investing overseas, tapping bits foreign reserve for the third time in as many years and said that he will vigilantly monitor the currency market to take the right time for another intervention. Likewise, the Bank of Japan said that it strictly scrutinize the impact of surging Yen’s value on its economy that signals the preparedness of the central bank for another ease in monetary policy as the Yen’s gains jeopardize the outlook for recovery. If such actions to be taken by policy makers become effective, it is likely for Japan to fully recover from the recent disaster that assures its fiscal balance in the near future.