The Graying of Japan and ESG Credit Implications
As Kroll Bond Rating Agency (KBRA) expands our global footprint and sovereign ratings, we continue to focus on analyzing structural issues that could develop into key contributions to credit risk analysis, including those related to environmental, social, and governance (ESG) factors. In the case of Japan, demographic trends are important social factors that shape the sovereign’s credit metrics and public policy decisions. Demographic challenges, including the aging (graying) of its population, contribute to Japan’s credit profile, alongside other important credit features such as reserve currency status and income level. This report highlights the relevance of ESG factors in sovereign credit analysis and supports our expanding research effort to improve transparency on the impact of ESG factors on credit quality.
Population dynamics influence government credit ratings through their impacts on economic growth, political risk, and government finances.
Japan’s demographic puzzle involves low fertility rates, rising life expectancy, and its growing elderly population.
Government policies are already targeting this ESG risk, although improvements in fertility rates have plateaued.
Japan’s adverse demographics is a standout even among other advanced economies with similar challenges.
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