Today Fitch downgraded its outlook on Japan, making all the old claims about fiscal consolidation, blah, blah blah.
The market didn’t even bother to react for more than a few minutes.
The truth is: Japan does have a fiscal problem: The deficit isn’t big enough.
How do we know? We just look at what the market is saying. The yen is super-expensive (to the point that it hurts domestic margins), which means clearly there’s a shortage of yen in the world. And yields on Japanese Government Bonds are rock bottom, which means that demand is huge compared to supply.
And of course the economy is at stall speed.
So basically every single number out there indicates that there’s a shortage of yen and debt… and yet the country is urged to consolidate more? Does that make any sense at all?
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