The Japanese yen was mixed today after Fitch Rating maintained Japan’s sovereign credit rating. The forecasts made by the agency were not all good, though.
Fitch Ratings maintained Japan’s Long-Term Foreign-Currency Issuer Default Rating at ‘A’. The outlook is stable. The rating agency cited the following reasons for its decision:
Japan’s ratings balance the strengths of an advanced and wealthy economy, with high governance standards and strong public institutions, against weak medium-term growth prospects and high public debt. The country has strong external finances, underpinned by a persistent current account surplus as well as large net external credit and international investment positions relative to peers. The economy’s external resilience is further supported by Japan’s reserve currency status and investor perceptions as a safe haven.
Yet the agency also predicted the economic growth to slow in 2019 after the unexpectedly strong expansion in the first quarter of this year:
We project GDP growth of 0.8% in 2019, the same outcome as in 2018, despite an unexpectedly robust 2.1% in 1Q19 (seasonally adjusted, annualised). GDP growth is expected to lose steam through the rest of the year and early 2020 from weakening exports and industrial production.
The report mentioned the negative impact of trade wars:
Japan and other countries in the region are reeling from the effects of the global trade downturn associated with the escalation in the US-China trade dispute. Shipments of components to China have weakened as has global demand for capital goods from a fall in capex. A downturn in global demand for automobiles and persistent uncertainties in US trade policies are exacerbating these trends. A further escalation of global trade tensions could pose a significant risk to the outlook for Japan. For Japan’s part, its recent imposition of export restrictions on Korea has increased geopolitical tensions.
The outlook for inflation was not particularly positive either:
We expect inflation to pick up temporarily following the tax hike, to 1.5% by the end of the year. However, with underlying inflation momentum (excluding food and energy) below 1%, we expect headline inflation to fall back again to 0.8% by end-2020, well below the Bank of Japan’s (BoJ) official 2% target.
There were no macroeconomic releases in Japan today. Tomorrow, the trade balance will come out. Japan’s Consumer Price Index and All Industry Activity will be released on Friday.
USD/JPY dropped from 108.24 to 108.03 as of 18:03 GMT today. EUR/JPY was little changed at 121.31. GBP/JPY edged up from 134.26 to 134.40.
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