Fitch downgrades Japan citing economic concerns

So ALL Top Ranking Credit Companies continue to Downgrade Japan's Credit Rating? Yes. so what about Abenomics? It is working, as per govt agencies.

"The country eventually has to boost taxes to cover rising costs for health and elder care as the average age in the nation rises."

No, what HAS to happen is REAL SPENDING CUTS. Raising various taxes on a shrinking AND greying population is a sure way of pushing the economy off the cliff. Every time the consumption tax has been raised has caused a recession/depression. Insanity is conducting the same experiment while expecting different results.

"Fitch said that strong credit fundamentals like a high-income, wealthy economy and social and political stability support Japan’s ratings."

In order words, Japan scores highly on real things that really exist in the real world, but fails when it comes to imagined "problems" that have never actually materialized after these many years, except in the minds of people who don't know how public finance works. Naru hodo, mate.

Yeah, yeah, yeah. The same people who did not predict (or rather promoted) the Great Recession of 2007-8. They are just mad because they cannot take home to the US the vast amounts of wealth Japanese companies have in the bank.

These developments increase Fitch’s uncertainty over the degree of political commitment to fiscal consolidation

The only thing these clowns at Fitch, like their cohorts at Moody's, are uncertain about is how the financial system works. That "staggering" debt is the net amount of Japanese yen in the system. That's why rich Japanese people have lots of yen in the bank, cause they don't issue it to themselves. And the Japanese government does not "eventually have to boost taxes to cover rising costs for health and elder care as the average age in the nation rises". All they have to do is type numbers into a computer and hit enter. How many of those numbers they want to take back through taxation is a completely different question. Anybody working in finance who thinks otherwise should be fired immediately for stupidity. Unless of course stupidity is the prerequisite for getting the job so you can spew nonsense and scare people with imaginary problems about non-existent debts.

These jokers have been yelling that the sky is falling for decades in Japan, they were wrong then and they are wrong now.

Where were these guys in 2008, when they sky actually did fall?

If the government ordered the BOJ to burn all the Japanese government bonds it owns the staggering debt would miraculously be reduced.

Looks like more money printing on the way.

Japan really needs to print more money to devalue its debt. I think printing money is the best way to collect tax without people objecting to it.

The country eventually has to boost taxes to cover rising costs for health and elder care as the average age in the nation rises.

Or alternatively, stop paying all the rich people the same kind of social security benefits as poor people, for example. Spending reforms would surely go a long way in Japan, where the elderly have most of the money.

“These developments increase Fitch’s uncertainty over the degree of political commitment to fiscal consolidation,” Fitch said, noting that Japan is set to unveil a new fiscal strategy this summer.

Just like every year, reminding one of the "fool me once, shame on you" saying. Fitch is right to recognise the uncertainty and downgrade. Cycnically I'd suggest there isn't uncertainty, because it is certain that the current government has no serious intent to address the issues.

Fitch said that strong credit fundamentals like a high-income, wealthy economy and social and political stability support Japan’s ratings.

Mostly a fair observation, but political stability insofar as having a government that consistently adds tens of trillions of yen of extra debt to the pile each year is actually a ratings weakness, IMO.

Most of Japan’s public debt is held by the Bank of Japan and other Japanese financial institutions, so it is considered relatively stable.

With the Bank of Japan bankrolling the government, the debt may be stable, but this will not go on without further negative consequences for the value of the currency, which is needed to purchase resources from abroad.

All those cash that Japanese have stuffed under the beds, due to the fact that banks hardly pay any interest on them, are all going to be worthless pretty soon.

In order words, Japan scores highly on real things that really exist in the real world, but fails when it comes to imagined "problems" that have never actually materialized after these many years

Yes, the Titanic is unsinkable, and you're leader of the band. Keep on playing, despite the alarm bells.

Yeah, yeah, yeah. The same people who did not predict (or rather promoted) the Great Recession of 2007-8.

They rated mortgage bonds too highly. If they are rating Japan's debt too highly now too, what does that tell you?

That "staggering" debt is the net amount of Japanese yen in the system.

A thoroughly wrong statement.

All they have to do is type numbers into a computer and hit enter.

Such behaviour is not without consequences.

These jokers have been yelling that the sky is falling for decades in Japan, they were wrong then and they are wrong now.

A more relevant matter is whether the risk will materialize in future, not whether it has or not to this date. If like the leader of the band on the Titanic you think it won't because it hasn't already happened, best of luck.

If the government ordered the BOJ to burn all the Japanese government bonds it owns the staggering debt would miraculously be reduced.

Indeed it would, but this would not be good for the value of the yen. The BOJ's balance sheet isn't called a balance sheet for nothing. Destroy the assets, and the value of the liabilities (e.g. the currency that the BOJ issues) will go down too.

Surprised that Abe's government didn't call them in for a butt-chewing for daring to report negative news.

Japanese ratings companies JCR and R&I have Japan rated "AAA / Stable", "AA+ Stable" respectively (and the USA "AAA / Stable", and "AAA Stable").

So it's interesting that the foreign ratings companies have downgraded Japan so much further than these Japan-domiciled ratings companies. Are the Japanese rating companies relative geniuses? Or are they are missing something that their foreign peers see? Or is there another reason for the diverging views?

@fxgai

"Keep on playing, despite the alarm bells."

What "alarm bells."?? Higher bond rates? Nope. Bond meltdown? Nope. Hyper-inflation? Definitely nope. Loss of investor confidence? Nope.

That is, a bell that's actually ringing, as opposed to being "expected" to ring "sooner or later" (and in the imaginations of people who have a track record of getting everything wrong).

What "alarm bells."

When even the ratings agencies who mis-rated mortgage securities have figured out that Japan has problems, that is an alarm bell.

Higher bond rates? Nope. Bond meltdown? Nope. Hyper-inflation? Definitely nope. Loss of investor confidence? Nope.

That's like an alarm bell that only starts to ring after your house has already burnt down.

Japanese ratings companies JCR and R&I have Japan rated "AAA / Stable", "AA+ Stable" respectively (and the USA "AAA / Stable", and "AAA Stable").

So it's interesting that the foreign ratings companies have downgraded Japan so much further than these Japan-domiciled ratings companies. Are the Japanese rating companies relative geniuses? Or are they are missing something that their foreign peers see? Or is there another reason for the diverging views?

Another reason could be Japanese rating companies may be using initial "A" of top three leaders Abe, Aso, Amari (!)

So it's interesting that the foreign ratings companies have downgraded Japan so much further than these Japan-domiciled ratings companies.

Do you want to be the company that starts a panic? The government can always downplay the foreign angle but not domestic and the first one that does will probably be left out to dry in the wind.

Japan sincerely needs some companies with the cajones to stand up to Abe.

The economic situation in Japan is confusing, at best. We read about soaring all time high Nikkei and other great news but see a rising vaccancy in buildings where the tenants have left and will not be replaced because its too expensive to operate a business in depressed areas. Weak yen and rising taxes arent helping domestics.

The market is unimpressed by Fitch. 10 year JGB gained in value and is traded at 0.295% pa. This means the total interest payment for the 10 year period is just 2.95% of the principle.

As long as the notes are denominated in yen, there is no worry about default.

A thoroughly wrong statement.

Feel free at any time to give your explanation of why it is wrong. But as the money supply consists of 1) money created through loans by commercial banks and 2) money created through government spending, matched to an equivalent issuance of government bonds, the government debt and the net private sector financial assets are by definition the same. And that means any explanation you can come up with will by definition be wrong.

Such behaviour is not without consequences.

Such behavior is how every country in the world operates. It is logically and mathematically impossible for the system to operate in any other way. Any consequences that occur are due to the fact those in charge around the world either don't understand that reality (they think there is still a gold standard in place) and so make irrational policy decisions, or do understand the reality and use that understanding to line their own pockets by feeding at the trough.

When even the ratings agencies who mis-rated mortgage securities have figured out that Japan has problems, that is an alarm bell.

They haven't figured out a thing. If they had they would stop making fools of themselves.

Some posters here must have "superior foresight" giving them an advantage over those "stupid" international institutions buying all that JGB "toilet paper" that has surged in demand recently because of widespread zero interest rates.

I give Fitch Ratings a big fat downgrade. And other so-called credit agencies like them, Standard & Poor and Moody's.

http://www.cfr.org/financial-crises/credit-rating-controversy/p22328

They've given high ratings to low quality assets in the past that have contributed to the credit market bubbles that have collapsed. Their evaluations are merely opinions, and can't be held accountable in any court when they're wrong or mislead.

"That's like an alarm bell that only starts to ring after your house has already burnt down."

Errr, alarm bells go off AFTER the fire starts and destruction gets under way. You need to get your idioms right.

So go on, tell me one example of Japan's debt "alarm bell." Ie, real evidence that the fiscal debt is destroying the country's economic health.

the minds of people who don't know how public finance works. Naru hodo, mate.

Some people don't seem to know that public finance has a direct effect on private finance. I guess Fitch is one of those groups who doesn't know how public finance works?

So go on, tell me one example of Japan's debt "alarm bell." Ie, real evidence that the fiscal debt is destroying the country's economic health.

Here are two pieces of evidence: deflation, and decreasing population.

The country eventually has to boost taxes to cover rising costs for health and elder care as the average age in the nation rises.

No country has to "boost" taxes to deal with rising debt. That argument assumes that Japanese people don't pay enough tax when, in fact, people do pay a lot of taxes.

Income is taxed by the government at both the national and municipal level. Effective meaning a person's income is taxed twice. There are taxes on property, capital gains, exit taxes, tariffs, fees, etc.

The Japanese government is very much like those in the rest of the developed world: it imposes onerous tax burdens on its citizens, collecting gargantuan revenues.

Japan's debt woes are the result of DEFICIT SPENDING. Corruption, waste, and inefficiency are real, and significant factors in rising costs.

European states have high value added taxes (VATs), income tax rates above 40% in some cases, yet, many are being crushed by huge debts.

Tax increases hurt the economy, and last year's consumption tax proved that. An anemic, sluggish, economy isn't going to lead to balanced budgets, and reduce overall debt. Higher VATs, or income taxes discourage robust, discretionary consumer spending.

What's more, higher VATs hurt working families, especially those with low or median incomes. Essentials like food, energy, and healthcare become more costly. Higher taxes limit disposable income, and thereby, reduce discretionary purchase. This has a knock on effect on the bottom line of businesses, particularly small and medium sized ones.

On the subject of elder care, tax hikes work against families and individuals caring for their aged and/or ill relatives. Healthcare isn't cheap, and taking away much needed income from working people won't help Japan's elderly population.

Thorough audits, corruption inquiries, cuts in red tape, and restraint with public finances are what's needed to rein in the debt, and control rising costs. This notion that taxes increases are essential is misguided, and fallacious.

Errr, alarm bells go off AFTER the fire starts and destruction gets under way.

Errr, no, an alarm bell is something that warns you BEFORE the destruction gets under way. That's why people install alarm bells. Your demanding to see a bond meltdown or hyperinflation before acknowledging the risks Japan faces, is imprudent and nonsensical.

As long as the notes are denominated in yen, there is no worry about default.

It's important to think about the big picture. Is not "defaulting" all that is important? It's easy to print money, and not "default" in the narrow sense of the word. But there are other valves which can release pressure besides the "default" valve. However it plays out, there are consequences.

Feel free at any time to give your explanation of why it is wrong.

It is obviously wrong to say that the "debt is the net amount of Japanese yen in the system". What are you missing?

"What are you missing?"

Um, like the man said: an explanation.

"Errr, no, an alarm bell is something that warns you BEFORE the destruction gets under way."

Sure, but AFTER the fire starts. Again, what's Japan's metaphorical "fire" that has already been ignited by its fiscal debt?

"Your demanding to see a bond meltdown or hyperinflation before acknowledging the risks Japan faces, is imprudent and nonsensical."

I'm asking to to see tangible evidence that supports your theory/belief. How whack is that, eh? Silly me.

I'm asking to to see tangible evidence that supports your theory/belief. How whack is that, eh? Silly me.

Your silliness is your denial of the existence of risk. I don't know how many more 9/11s, Lehman Brothers and Fukushimas you would need to live through before you would come to accept otherwise.

I've pointed this out a quaddrillion times already, but risk is not the same as a prediction or a theory or a forecast. I imagine you would not claim to have predicted any of those nasty events of the past 15 years... and yet they happened anyway. What does this tell you?

what's Japan's metaphorical "fire" that has already been ignited by its fiscal debt?

For example, the exceedingly high level of debt constitutes a whopping mountain of very dry tinder, should there be a sharp rise in interest rates.

Your response will presumably be that "interest rates are low!", which is (again) not a proof that they will never rise in future (as might be the case for example when the BOJ tries to exit its QQE policy, or for other unforseen reasons).

The 3 credit rating agencies, Moody's, S&P, Fitch, all based in the USA, are racist and biased favoring the USA. These are the same 3 which rated the subprime bonds AAA or Aaa causing the American subprime mortgage crisis of 2007-2008. The huge losses from the subprime bonds caused US banks to be bailed out by the US government. Below are some credit ratings : (More A or a, the better) ...................Japan............China............USA S&P...............AA-................AA-.............AA+ Fitch............. A ..................A+..............AAA Moody's........A1 ..................Aa3.............Aaa

Dagong........A+..................AAA...............A- JCR.............AAA.....................................AAA Chengxin.... AAg+................AAg+..........AAAg..

The C.I.A. defines external debt of a country as the total public and private debt owed to nonresidents repayable in foreign currency, goods, or services.

The external debt by the end of 2012 are $3017 billion for Japan, $15680 billion for USA. That for China as of end of 2014, 2 years later, is $894 billion for China.

.............................................Japan............China............USA..................................... current account 2014..........$31................$204.............. - $386(minus)............billion US$

2014 exports.......................$710..............$2252............$1610..............billion US$

https://www.cia.gov/library/publications/the-world-factbook/rankorder/2079rank.html https://www.cia.gov/library/publications/the-world-factbook/rankorder/2078rank.html

https://www.cia.gov/library/publications/the-world-factbook/rankorder/2187rank.html

This a good warning to Japan to be fiscally prudent but on the other hand let's not forget that these are the same people that gave triple A ratings to banks and insurance companies before Lehman debacle.