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Fitch lowers credit outlook on Japan to negative on COVID-19 impact

15 Comments

Rating agency Fitch on Wednesday lowered its outlook on Japan's long-term foreign currency debt rating to negative from stable, citing the heavy blow from the coronavirus crisis and rising public debt as policymakers try to get the economy back on track.

"The coronavirus pandemic has caused a sharp economic contraction in Japan, despite the country's early success in containing the virus," Fitch said.

The global rating agency affirmed Japan's rating at "A."

Japan's economy is expected to have contracted sharply in the second quarter as the coronavirus crisis hit global demand and a national state of emergency from mid-April to late May slowed consumer and business activity.

Although the government has lifted the emergency status, a recent jump in new infections could put renewed pressure on the economy.

Fitch projects the world third-largest economy to shrink by 5% in 2020 and to rebound to 3.2% growth in 2021.

Japan's fiscal support and an expected recovery in external demand should help the economy to return to quarterly growth in the second half of 2020, Fitch said.

But it also expects bigger fiscal deficits in 2020 and 2021 would add significantly to public debt.

"The negative outlook reflects that the higher debt ratio and downside risks to the macroeconomic outlook will nevertheless exacerbate the challenge of placing the debt ratio on a downward path over the medium term," Fitch said.

The government has rolled out stimulus spending worth $2.2 trillion to respond to the coronavirus crisis but analysts say the huge public debt constrains its ability to ramp up fiscal spending to spur growth.

"The markets see the Bank of Japan will continue to buy government bonds if needed so that interest rates won't spike," said Mari Iwashita, chief market economist at Daiwa Securities.

"But Fitch's move is an alarming sign for Japan's fiscal spending."

The rating agency also expects the Bank of Japan will keep its interest rate settings under its yield-curve control framework till at least the end of 2022.

"We believe the BOJ views interest rate cuts as part of its arsenal for potential further easing, but that it will refrain from doing so because of the impact that further rate cuts into negative territory would have on bank profitability," Fitch said.

S&P Global Ratings last month lowered its outlook on Japan's sovereign debt rating to stable from positive.

© Thomson Reuters 2020.

©2020 GPlusMedia Inc.

15 Comments
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Rating agency Fitch and its companion agencies Moodys and S&P contributed to the global financial collapse as they published glowing reports of financial instruments that were barely worth the paper that they were printed upon. In bed with the same banks who issued them. Not sure how reliable they are now.

6 ( +6 / -0 )

Well, I'm not surprised at all, Japan had that problem for a very long time but CoronaVirus finished what the bubble in 90s couldn't do. It's time for new Japan, but this will take ages to build, since mentally the Japanese people are not ready for this change, they want life-long employment, 4 bonuses a year (just for coming to work on time), social benefits and God know what else.

Well, I can tell you those days are long time over. If you would take it in 90s as an Adult we would be in different situation, but look 2 trillion here, 5 billion there, X million for Dentsu etc. Yayaya you can't buy everything that would be communism, but wait isn't it?

Anyway guys, take care of yourself and my advice is to transfer your money to the USD or Gold, Silver anything else before Japanese monetary system will collapse. The end of September is last month for government aid.

-2 ( +6 / -8 )

@Larr Flint

You are suggesting to buy gold now?

The time to have done that has long gone....

4 ( +4 / -0 )

but analysts say the huge public debt constrains its ability to ramp up fiscal spending...

I would love to hear how that supposed "constraint" would happen in a country that borrows its own money from itself.

"The markets see the Bank of Japan will continue to buy government bonds if needed so that interest rates won't spike.

I wonder if it's crossed her mind that once the BOJ owns the bonds, it owns that part of Japan's fiscal debt, and that the BOJ is a public sector institution and has the power to cancel all those bonds and thus a big chunk of the debt, if it wanted to.

Nearly half of Japan's debt is owned by the BOJ, which the Einsteins at Fitch don't seem to realize.

3 ( +5 / -2 )

@JeffLee

You're one the selected few who's actually clued up, as far as Japan's debt "problem" goes.

"Experts" don't want to accept that borrowing from mummy is not the same as borrowing from the woman next door.

Especially when the woman next door is a foreigner and lives abroad.

1 ( +3 / -2 )

@wanderlust, it doesn't matter, they've downgraded the credit rating.

-1 ( +0 / -1 )

Eventually, Japan will be capitulated by the US and EU to open its debt market for foreign investors. This means sovereign debts. Oh boy, it starts looking like Greece once the foreign investors swiftly buy all debts. I think LDP cronies are very happy if their Western masters buy their debts and control their economy.

They definitely fears China is going to buy those debts. Of course, this is the real reason why the US hasn't forced Japan to fully open all of its economy yet - even after the Plaza Accord. China would easily dominate over Japan without firing a shot, which it already did by 50%. Most Japanese real estate assets are being owned by the Chinese through Chinese Japanese or ethnic Taiwanese intermediaries, nowadays. Japan's tourism and consumer economy are entirely dependent on Chinese tourists. Just go to Ginza, people will tell you that Chinese is their only customer of luxurious goods.

Lucky for Japan, the threat of China prevents their country from opening their debt market for Western investors. The US isn't happy if Japan is taken over by China like what the Chinese did with Australia. Japan will live for now.

3 ( +7 / -4 )

kurisupisuToday  05:32 pm JST

@Larr Flint

You are suggesting to buy gold now?

The time to have done that has long gone....

It doesn't matter if you invest in Gold now or in 10 years. Gold is a storage of value. The best example I read about is:

"In 1925 Ford T-Model cost 260$ and gold price per ounce was $20.67. So you needed roughly 12.5 ounce of gold to buy a Ford T-Model. However, nowadays everyman car Ford Fusion cost 22 000$. If you still have that 12.5 ounce of gold times the price of gold now (1950$?) 24 375$"

It doesn't matter if the price of gold is 10 000, 20 000$ because Gold value didn't change. The value of dollar decreased. So actually the money you hold now is worth less because you have to pay more for Gold.

It's going to continue. Cheers mate.

2 ( +3 / -1 )

Really, like these fund markets think people are still gullible to their corporate raiding, stripping and mining the bank accounts of hard working people who still "trust" banks. These white collar criminals should be placed in long life prison for preying on the innocent worker who has invested life sweat money in pension plans and other life saving opportunities.

"they want life-long employment, 4 bonuses a year (just for coming to work on time), social benefits and God know what else."

No what we want is long life employment, 2 bonuses a year, monetary cash awards for coming to work on time or payed the time earned for no vacation time, equal overtime pay on an accrual basis, social benefits, paid vacation to include destination or no cost to use of company owned time shares, after all why not the company is built on sweat, blood and tears of the worker it's only fair they get something back aside the long lasting pains of aching backs, tired swollen feet, no overtime pay etc. Then and only then a happy employee is a prosperous economy.

2 ( +3 / -1 )

"Rating agency Fitch on Wednesday lowered its outlook on Japan's long-term foreign currency debt rating to negative from stable, citing the heavy blow from the coronavirus crisis and rising public debt as policymakers try to get the economy back on track." Yeah right, please tell us a much better lie. Anyone forget just how dirty these fund groups and banks are, recall HSBC? No one, I repeat no one went to jail. The fine of 1.5B did not even hurt their bottom line, they just learned how to hide it better.

3 ( +3 / -0 )

@Xeno Man

Japan will be capitulated by the US and EU to open its debt market for foreign investors.

I have no idea what you're talking about. Foreigners are frequently bigger buyers of JGBs than Japanese banks. How exactly is that not open to foreigners?

Congrats, though. Your post got six likes.

0 ( +2 / -2 )

IS this accurate ???.

0 ( +0 / -0 )

Ratings agencies are behind the curve.

Buying JGBs is like playing musical chairs with the BOJ. Not for me.

Need to be very wary of insurance products that just “invest” in JGBs too.

0 ( +0 / -0 )

It is the same everywhere.

But the problem for Japan is not external debt. Other countries owe Japan more than Japan owing other countries. The problem is the ability to "collect" on all those loans in a timely manner, because of the pandemic. US is also one of the major debtors to Japan.

0 ( +0 / -0 )

Other countries owe Japan more

is that so? Isn’t it just that Japan domiciled entities including Yours truly just own lots of overseas assets? I don’t intend for my overseas assets to be used to bail out the Japanese government, for my part. Can’t speak for others, but can’t imagine many being happy about such an arrangement either.

0 ( +0 / -0 )

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