Fitch cuts outlook on Japan over sales tax delay

Interest rates soaring? To what? -.9%

Global markets already felt Fitch Shock yesterday !

The pressure to increase sales taxes continues -will the citizens be strong enough to push back.

Why does Fitch still have any confidence that the Japanese government has any commitment at all to fiscal consolidation?

Like with the sub-prime debacle, one day we'll find some people questioning why these rating agencies were rating Japan as highly as they do.

But I do so now.

The only way the government remains in business is because they have the central bank printing off money to finance it all. It's Monopoly money.

In other news, last week we heard that one of the mega banks is no longer interested in being a primary market dealer in govt debt.

Fitch is miles behind the curve.

Japan will go bankrupt. That is, unless it addresses the elephant in the room - government spending.

It makes me wonder how we managed to live - quite comfortably - here in Japan before they ever had any consumption tax... Those were the days !

fxgai - totally agree with criticism of the big ratings agencies; you had to read between the lines to grasp their role in the sub-prime debacle. Fitch, Moodys and S&P were too involved with the customer (banks and financiers) and their judgements were more profit-driven and less risk-minded.

3 highly over-rated (sic!) companies!

tbh only Moody's and S&P ratings changes matter. Fitch is generally considered 2nd to both the aforementioned agencies, at least with regards to ratings.

Don't hate, markets don't care what you think about Fitch.

The ratings companies rated sub-prime junk as triple A. They are rapidly becoming irrelevant in the post sub-prime world.

Japan will go bankrupt. That is, unless it addresses the elephant in the room - government spending.

Don't worry. That's not going to happen.

Almost all of Japanese government's debts are held by Japanese ( banks, insurance companies, individuals). Government borrowing from its own citizens is nothing more than an domestic transfer: a shift of funds from the right hand (taxes to pay off the debt) to the left hand (interest income for government bond holders).

... a debt mountain that has grown to more than twice the size of an economy...

Which economy, a small African nation's?

@sighclops, the elephant in the room isn't government spending. Look around and see if you can spot 'em.

This elephant is plaguing all developed nations.

"Japan will go bankrupt."

That means Japan would run out of a currency it has the authority to issue. How exactly would that unfold?

tbh only Moody's and S&P ratings changes matter.

Yes, but they too have Japan's ratings on the same trajectory, downward. Even Japanese ratings outfits have started to follow suit recently.

The ratings companies rated sub-prime junk as triple A.

Which suggests to me the ratings outfits have a tendency to over-rate assets, and when they do issues downgrades they are always telling us something we already know.

Almost all of Japanese government's debts are held by Japanese

Specifically the central bank is rapidly buying up the debt, and it can only do so by paying with fresh yen it adds to the game, like monopoly money. So long as everyone (including foreigners who sell Japan various resources) continues to believe that the Japanese monopoly money is worth something, all should be fine though.

Fitch ? Didn't they rate Lehman brothers with an A rating before collapse?

Who the hell cares who Fitch is or what they have to say? Those of us living in Japan know that raising taxes will send Japan into not a recession, but a depression.

The Japanese government loves to ignore foreign assessments when they don't like them (日本だから) and to embrace them when they agree (他の国はそうしている).

Japan will go bankrupt. That is, unless it addresses the elephant in the room - government spending.

Hey buddy! Actually, its not the gov spending: its WHAT they're spending it ON. If they cut spending for paving roads that don't need to be paved and bridges to nowhere and started spending more on daycare centers and incentives to ease the burdens of young families it might do some good. Instead, they just waste money.

Fitch ? Didn't they rate Lehman brothers with an A rating before collapse?

Yeah. Those idiots couldn't find their butts with both hands. Yes, Japan's economy is in serious do-do. But not because the Jackasses at Fitch decided it is.

Interest rates soaring? To what? -.9% LOL yep as all these so called expert economist have stated Japan will have to watch soaring interest rates and hyper inflation, oops hold on!?

In order to avoid recession or depression, the government must spend what the central bank prints. Not spending is not an option. However, over spending and spending on unnecessary public projects is also just as ludicrous. Also major corruption and scandals negatively affect the world view of national governments and the value of national currencies.

So as long as the yen stays "strong" or at least is viewed as "strong" then things should be OK in Japan. But the key statistic to watch and hope to not see increase is the JGB long rates. If long rates on JGBs were to suddenly rise really high, then you'll suddenly need a big bucket full of 10,000 yen notes to buy one bag of rice and the world economy will flip again. And it would be much worse than 2008. Or if there were some major scandals uncovered in the Diet or the BOJ, the outcome would also be catastrophic. We're still in a very fragile 'recovery' period, let's hope that none of the above happens.

sighclopsJUN. 14, 2016 - 08:44AM JST

Japan will go bankrupt. That is, unless it addresses the elephant in the room - government spending.

Yet, the Yen is gaining value and 1 dollar is, now, 105.90 yen. That means investors put their money into yen on the day Fitch threatened to downgrade Japanese government bond. So, there is disagreement between Fitch and the investors.

Which do you believe, Fitch or the investors who actually put their money?

".....like monopoly money."

I'm heading to Thailand soon. If the local exchange booths refuse to take my yen, you'll be right. If I get a fistfull of baht for each 10,000 yen note, you'll be wrong. Let's see what happens.

No Fitch is on the ball!

They know that Japan has a huge debt to service and that higher taxes are the answer therefore .....

If the local exchange booths refuse to take my yen, you'll be right. If I get a fistfull of baht for each 10,000 yen note, you'll be wrong. Let's see what happens.

You'll get some quantity of baht, but whether you'll get the same quantity, for as long as the BOJ prints 80 trillion yen extra each year, is not something that can be determined on a single excursion.

Kind of like how the Fukushima nuclear plant was generating electricity, until one day, it wasn't.

"whether you'll get the same quantity.....is not something that can be determined on a single excursion"

Huh? You referred to the yen as saying, "It's monopoly money." Note the use of the present tense. The thick wads of Thai baht I expect to receive for each 10,000 yen note would clearly prove your premise wrong (not for the first time)

Why don't you check the exchange rate on the day then you'll know how much Thai paper you can receive for your Japanese paper........

The thick wads of Thai baht I expect to receive for each 10,000 yen note would clearly prove your premise wrong

To the extent that people don't believe that it's monopoly money, you are right.

But I don't believe it's inconceivable that perceptions could broadly change, as the central bank adds another 80 trillion yen to the game each year.

Do I hope those perceptions won't change? Certainly. But is that guaranteed? I'm not convinced.

"Why don't you check the exchange rate on the day then you'll know how much Thai paper you can receive for your Japanese paper.."

Well, according to Fxgai, I'd receive no yen. He is telling us the Bank of Japan has turned the yen is "monopoly money," which as we all know is worthless, and thus the yen is worthless, in his mind.

Anyhoo, in a couple of weeks time I'll have real-world evidence to test his little theory. Real-world evidence, by the way, has long been his worst enemy. LOL.

it's obviously not regarded as worthless yet, but keep printing like this and I for one won't be surprised if there is an eventual splat if views broadly change.

but keep printing like this and I for one won't be surprised if there is an eventual splat if views broadly change. why would views broadly change the US printed over $5 trillion and it didnt do anything to change their minds? Japans printing hasn't cause hyperinflation or inflation anywhere near the 2% theyre targeting. Like the US$ the Japanese yen is backed by nothing so it basically just paper. The day Japan , Euro or the US economies or currency crashes is the day whole worlds economy will make the GFC look like a picnic.

But, wtfjapan, if it happens will you be surprised?

Also, the US stopped printing like madmen already (for now at least) while the Japanese haven't, and yet they are doing more printing on a relative basis to start with, and there are no signs of them stopping any time soon. Do I hope that nothing bad comes of it all? Sure.

But like you point out, has the Japanese experiment worked? What is the purpose? And what are the risks?

What were the odds of Fukushima daiichi melting down again?

and in all the history of QE in developed economies there hasn't been any hint of hyperinflation or bankruptcy, what insider trading info do you have that others dont in supporting your beliefs? or is it just a guess!?