Moody’s Issues France Credit Rating Warning Over Snap Elections 

Activists and demonstrators take part in an “antifascist rally" following the European election results, in Toulouse, France, on June 10, 2024. (AFP)
Activists and demonstrators take part in an “antifascist rally" following the European election results, in Toulouse, France, on June 10, 2024. (AFP)
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Moody’s Issues France Credit Rating Warning Over Snap Elections 

Activists and demonstrators take part in an “antifascist rally" following the European election results, in Toulouse, France, on June 10, 2024. (AFP)
Activists and demonstrators take part in an “antifascist rally" following the European election results, in Toulouse, France, on June 10, 2024. (AFP)

France's snap parliamentary elections are negative for the country's credit score, ratings agency Moody's has warned.

"This snap election increases risks to fiscal consolidation," Moody's said in a statement late on Monday, describing it as "credit negative" for the country's Aa2 rating, which is one notch above Fitch and S&P Global's equivalent score.

"Potential political instability is a credit risk given the challenging fiscal picture the next government will inherit," it added, saying the currently "stable" outlook on France's rating could be cut to "negative" if its debt metrics worsened further.

"A weakening commitment to fiscal consolidation would also increase downward credit pressures," Moody's said.

President Emmanuel Macron called a shock snap legislative election on Monday following a bruising loss in the weekend's European Parliament vote to the far-right party of Marine Le Pen.

Macron's unexpected decision, which amounts to a roll of the dice on his political future, could hand major political power to the far-right after years on the sidelines, and neuter his presidency three years before it ends.

The legislative vote will take place on June 30, less than a month before the start of the Paris Olympics, with a second round on July.

Moody's highlighted that the country's debt burden, which is already over 110% of GDP, is higher than other similarly rated countries and has seen a near-continuous increase since the 1970s due to consistently large structural budget deficits.

S&P Global downgraded its French rating earlier this month due to the same concerns, and Moody's signaled what would drive it to follow suit.

"The outlook, and ultimately the ratings, could move to negative if we were to conclude that the deterioration in debt affordability – which we measure as interest payments relative to revenue and GDP – will be significantly larger in France than in its rating peers," it said.



Japan's Demand-Led Inflation Slows, Clouds BOJ Rate Hike Path

 People visit Ameya-Yokocho shopping street in the Ueno area of Tokyo on June 19, 2024. (AFP)
People visit Ameya-Yokocho shopping street in the Ueno area of Tokyo on June 19, 2024. (AFP)
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Japan's Demand-Led Inflation Slows, Clouds BOJ Rate Hike Path

 People visit Ameya-Yokocho shopping street in the Ueno area of Tokyo on June 19, 2024. (AFP)
People visit Ameya-Yokocho shopping street in the Ueno area of Tokyo on June 19, 2024. (AFP)

Japan's core inflation accelerated in May due to energy levies but an index that strips away the effect of fuel slowed for the ninth straight month, data showed on Friday, complicating the central bank's decision on how soon to raise interest rates.

The slowdown in so-called "core core" inflation, which is closely watched by the Bank of Japan as a key gauge of demand-driven price moves, casts doubt on the bank's view that rising wages will underpin consumption and keep inflation on track to durably hit its 2% target.

The core consumer price index (CPI), which excludes volatile fresh food, rose 2.5% in May from a year earlier, government data showed, accelerating from the previous month's 2.2% gain due largely to a hike in the renewable energy levy. It was roughly in line with a median market forecast for a 2.6% gain.

But inflation as measured by an index stripping away both fresh food and fuel slowed to 2.1% in May from 2.4% in April, marking the lowest year-on-year increase since September 2022.

Private-sector service inflation slowed to 2.2% in May from 2.4% in the previous month, suggesting companies remained cautious about passing on labor costs.

"The Bank of Japan has been arguing that the strong pay hikes agreed upon in this year's spring wage negotiations will eventually provide a boost to services inflation, but so far there's little evidence of that happening," said Marcel Thieliant, head of Asia-Pacific at Capital Economics.

A renewed rise in crude oil prices and the boost to import costs from a weak yen muddle the outlook for inflation.

Analysts expect core CPI to accelerate near 3% later this month due to rising raw material costs. But such pressure could hurt consumption and discourage firms from hiking prices, hampering the BOJ's efforts to keep underlying, demand-driven inflation durably around its 2% target.

"Real wage growth remains weak in Japan and there's no data confirming that demand-driven inflation is accelerating," said Takeshi Minami, chief economist at Norinchukin Research.

"The BOJ probably won't raise rates again at least until October-December this year," he said.

The BOJ exited negative rates and bond yield control in March in a landmark shift away from a decade-long, radical stimulus program.

With inflation exceeding its 2% target for two years, it has also dropped hints that it will raise short-term rates to levels that neither cool nor overheat the economy - seen by analysts as somewhere between 1-2%.

Many economists expect the BOJ to raise interest rates to 0.25% this year, though they are divided on whether it will come in July or later in the year.

BOJ Governor Kazuo Ueda has said the central bank will raise rates if it becomes more convinced that inflation will durably hit 2% backed by robust domestic demand and higher wages.

Recent weak signs in consumption remain a concern. Japan's economy contracted in the first quarter due in part to a 0.7% drop in consumption as rising living costs discourage households from boosting spending.