Moody’s Investors Service on Monday raised Korea’s sovereign credit outlook to “positive” from “stable,” placing the country right below Japan and Taiwan for strong fiscal fundamentals and resilience in external financing.

“Korea’s fiscal fundamentals are very well-placed among its like-rated advanced and emerging economy peers. Its fiscal fundamentals have withstood the global financial crisis, as well as the ongoing eurozone crisis and the drag in global growth,” the credit rating agency said in a statement.

Korea now sits at A1, the fifth highest rating by the Moody’s. The two other main credit rating agencies ― Standard & Poor’s Ratings and Fitch Ratings ― also maintain the fifth highest rating for Korea, at A and A+ respectively.

The Finance Ministry said the upgrade would lead to an increased demand for Korean assets.

“Generally speaking, credit ratings by those major agencies play an important part of investment decisions at the institutional level. The upgrade adds to attractiveness of Korean assets,” Choi Jong-ku, deputy minister for international affairs, told reporters after the announcement. On his way to a provincial city, Finance Minister Bahk Jae-won broke the news by telling reporters that a credit outlook hike is imminent.

Moody’s cited Korea’s improving fiscal fundamentals as well as the reduction in the banking sector’s level of external vulnerability. It said the outlook for public finance is “favorable” and attributed the stability to a “relatively low inflation, low-risk premium on government securities and a relatively strong outlook for economic growth.” It picked the North Korea risk and the rising household debt as the main obstacles in the way of raising the country to an AA-.

“Fundamentally, geopolitical risks have not changed under the new, dynastic leadership in Pyongyang. Such risks are counterbalanced by the strong deterrence provided by Seoul’s robust alliance with Washington, and also by the shared interests among regional powers for stability on the peninsula,” Moody’s said.

By Cynthia J. Kim (cynthiak@heraldcorp.com)