Fitch Ratings affirmed Japan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A’ with a Stable Outlook. Fitch noted Japan’s “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.” And, “strong external finances marked by a persistent current account surplus and large net external credit and international investment positions relative to peers.”
Fitch expected Japan GDP growth to slow to 1.3% in 2018 and 0.7% in 2019. However, “trade protectionism poses a downside risk to the outlook, exemplified by the imposition of a 25% tariff on US imports of steel and aluminium, including from Japan.” Also, “spillovers from trade tensions between the US and China are also a risk, as are tensions on the Korean peninsula.” Regarding inflation, Fitch projected headline inflation to reach only 1.2% at the end of 2018, and rise temporarily to 2.8% at the end of 2019 due to sales tax hike.
The monetary settings under BoJ’s yield curve control framework will “remain broadly unchanged for the foreseeable future”. Fitch noted recent slowdown in asset purchase has been sufficient to sustain the share of outstanding JGBs held by the central bank at around 40%-45%. And, “this level of BoJ ownership is within levels that would prevent the emergence of problems for JGB market liquidity, which the BoJ continues to monitor closely.”
