Government policies and low unemployment and household debt will support repayments of loans backing asset- and residential mortgage-backed securities in Japan even as the country's economy slows, Moody's said.
The rating agency expects Japan's annual GDP growth to slow to 0.7% in 2019 and 0.4% in 2020 from 0.8% in 2018, due to a consumption slowdown brought on by the government's move to increase the sales tax to 10% from 8% earlier in October, as well as a deteriorating external economic environment.
While slowing growth raises risks for Japanese ABS and RMBS over the next 12 to 18 months, measures implemented by the government to mitigate the impact of the sales tax increase will help borrowers' abilities to repay their securities, the rating agency said.
Moody's also expects unemployment to remain low despite slowing economic growth, with the August unemployment rate unchanged at 2.2%. Low unemployment means most borrowers will have jobs, supporting their capacity to pay loans backing ABS and RMBS, the rating agency said.
The rating agency also highlighted Japan's low average household debt as a credit positive for ABS and RMBS, with the ratio of household debt to assets at 20%, while the household debt to GDP ratio is around 60%.
"Low debt means households are on average well placed to withstand negative events that may occur as the economy slows," Moody's said.
The rating agency expects default rates to remain stable and low in most ABS and RMBS sectors over the next 12 to 18 months.
