OREANDA-NEWS. Japan is likely to enact further stimulus measures following the victory of the governing Liberal Democratic Party in the 10 July upper house elections, says Fitch Ratings. A decision to roll out a stimulus package by itself is unlikely to trigger rating action, although recurring stimulus over several years risks further undermining public finances.

The government and its coalition partner have strengthened their mandate following the recent election, notably gaining a two-thirds majority in the upper house. The governing coalition now has super-majorities in both houses of the Diet. Questions remain as to how the government will use its renewed political and legislative mandate.

The prospects of faster fiscal consolidation seem remote. The government had announced in the run up to the election on 1 June, it would delay a planned consumption-tax hike to 2019 from 2017, and media are already reporting that a new round of fiscal stimulus is being planned. The consumption-tax decision was a key factor contributing to Fitch's decision to revise our Outlook for Japan's 'A' sovereign rating to 'Negative' from 'Stable' on 13 June, and new stimulus would further raise questions about the government's commitment towards repairing the fiscal balance sheet in the long term.

A one-off stimulus on its own is unlikely to have a significantly negative effect on Japan's credit profile. But if this is to be the start of a series of new spending programmes over several years, it would further damage Japan's fiscal position. Fitch had revised debt projections for Japan last month, and expects gross general government debt to GDP to continue rising 1-2pp per year through to 2024, from 245% at end-2016.

Japan's macroeconomic performance and outlook remain a weakness. "Abenomics" policies since early 2013 have failed to sustainably drive growth or inflation higher. In addition to fiscal stimulus, monetary stimulus has been significant with the Bank of Japan adopting a negative interest rate since the start of the year. We expect a further cut to interest rates this year, alongside new fiscal stimulus, but it is highly uncertain as to how effective it will be in boosting growth and raising inflation. The effectiveness of other potential unorthodox monetary policy measures such as "helicopter money" - which could entail central bank asset purchases, loans and/or direct distribution of money to the public - is even less clear.

Fitch does not expect rapid progress towards revision of Article 9 of the Japanese Constitution, under which the Japanese state renounces its sovereign right to resort to war as a means of dispute resolution, despite the coalition's gaining a two-thirds majority. Article 9 revision would probably require Diet support from the coalition's junior partner, the religiously based Komeito party, that is likely to remain opposed. The proposal would also have to gain approval in a national referendum, a move that opinion polls suggest could be difficult. In any event, Article 9 revision would not immediately affect the sovereign ratings.