Fitch Downgrades Japan To A From A+
With the USDJPY’s ascent to 125, 150 and higher having seemingly stalled just under 120, with concerns that the BOJ may not monetize more than 100% of its net debt issuance suddenly surfacing, the BOJ and the Nikkei would take any help they could get. They got just that an hour ago when Fitch downgraded Japan’s credit rating from A+ to A, citing lack of sufficient structural fiscal measures in FY15 budget to replace deferred consumption tax increase.
But don’t panic, Fitch says: it expects Japan’s gross debt to GDP ratio to “stabilize around 250% of GDP in 2020.” Perhaps the fact that Fitch did not predict the complete collapse of the Japanese economy is why the USDJPY spiked then promptly reversed and is trading almost unchanged, the same as Nikkei futures.
See, if Fitch had predicted a stabilization level of 2,500%, then Japanese stocks would be limit up today. Because remember: in the New Normal, only a completely socio-economic collapse and terminal currency devaluation leads to limit up in regional stock markets.
As to what really prompted the downgrade, which the BOJ was hoping would lead to a far more negative reaction for the JPY, here it is:
Full Fitch note:
Fitch Ratings-Hong Kong-27 April 2015: Fitch Ratings has downgraded Japan’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to ‘A’ from ‘A+’.
- The issue ratings on Japan’s senior unsecured foreign and local currency bonds are also downgraded to ‘A’ from ‘A+’.
- The Outlooks on the Long-Term IDRs are Stable.
- The Country Ceiling is downgraded to ‘AA’ from ‘AA+’ and the Short-Term Foreign Currency IDR is downgraded to ‘F1’ from ‘F1+’.
KEY RATING DRIVERS
The downgrade of Japan’s IDRs reflects the following key rating drivers:-
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