Japanese companies in the Nikkei 225 increased their total debt to ¥678 trillion ($4.2 trillion) for the fiscal year through March 2026, a 4.6% rise from the previous year [1, 2]. This surge in borrowing has coincided with a sharp increase in credit rating downgrades across major Japanese businesses by all three leading rating agencies in 2025 [1, 2].

S&P Global Ratings downgraded 19 major Japanese firms in 2025, up from 7 in 2024. Moody’s also downgraded 19 companies, a significant rise from just 5 the previous year. Fitch Ratings lowered its ratings 7 times in 2025, compared to only 1 downgrade in 2024 [1].

The rise in corporate borrowing is driven by cash shortfalls resulting from record merger activity, growing capital investments, and investor demands for higher shareholder returns [1, 2]. For example, Nippon Steel’s cash reserves shrank by about one-third while its borrowings doubled following its $14 billion acquisition of US Steel, which prompted an S&P downgrade [1]. Nissan Motor Co. was downgraded by S&P in November 2025 due to financial strains and expected negative free operating cash flow over the next 1-2 years [1].

Investor pressure in Japan is pushing companies to deploy capital more aggressively under tighter governance and inflationary conditions. Hiroki Shibata, managing director at S&P Global Ratings, said, "While this shift aims to enhance shareholder value and improve capital efficiency, we view it as increasing financial risk because of decreasing financial buffers. This trend could lead to higher debt leverage and increased reliance on bond capital markets to fund these activities" [1].

The fiscal year data through March 2026 revealed that borrowing by Nikkei 225 companies continues to grow alongside a notable uptick in credit rating downgrades across sectors. The financial challenges linked to extensive merger deals and external pressures have pushed some leading firms into riskier debt profiles.

The rating agencies’ increased downgrades in 2025 reflect this shift in financial stability for Japanese corporates. S&P Global’s downgrade of Nissan last November signals continuing concerns about operational cash flows and financial conditions amid these pressures [1].