Japan's ratings balance the strengths of an advanced and wealthy economy, with high governance standards and strong public institutions, against weak medium-term growth prospects and high public debt. The country has strong external finances underpinned by a persistent current account surplus and large net external credit and international investment positions relative to peers. A high stock of domestic savings contributes to the economy's external resilience, as reflected in perceptions of Japan as a safe haven.

At the same time, Japan's gross general government debt (GGGD) of around 230% of GDP is the highest among Fitch-rated sovereigns. The economy's intrinsic financial strengths could be eroded over time in the absence of effective reforms to boost potential growth and address the public debt burden, says Fitch.