BOJ stands put but the fiscal clock keeps on

The Bank of Japan left rates unchanged and did nothing to address the rise in the currency over the past weeks. This led to the natural rally in the Yen to the 104 range against the dollar. While the governor of the BOJ did say he would not hesitate to take additional steps towards easing, the lack of action in combination with flight to safety conditions from the Brexit kept the currency near lows not seen for almost 2 years in dollar terms.
 
There is more to the overall assessment of Japan at this time. As discussed in earlier posts the demographic shifts are working against the Japanese economy and the threat of the country losing its safe haven status is slowly increasing with inaction. Fitch warning of a credit downgrade with the delay of the tax hikes will cause international investors to look at these negative yielding securities with a lower credit rating as un-investable. This will leave the BOJ on the hook to continue to be the sole buyer of JGBs and it will be difficult to find buyers at the right yields to replace them.
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