kowenicki said:
Borrowing is set to surpass tax revenues as the Japanese government’s most important source of income this year, raising fears that even the slightest increase in bond yields could spark a global sovereign debt crisis. The land of the rising sun has long been proof that countries can run up debts while avoiding a crunch date, but as it finances deteriorate, it is being hit by the double whammy of falling demand for Japanese government bonds. The country’s demographics, which proved beneficial in the 1990s, as the ageing population invested heavily in JGBs in the run-up to their retirement, are now working against it. As these people move into the decumulation phase, they are selling down their bond holdings and the household savings ratio is set to fall below zero. Institutional investors are creating little new demand with the same money just washing round the system and international investors are unlikely to take up the slack for a yield of 1.5%. So who is going to fund the Japanese government’s deficit in the future? Dylan Grice, a strategist at SG, warns: ‘If international investors were to demand triple the current 1.5% yield, pricing JGBs in line with international bond market peers the game would soon be up because Japan’s current debt service already amounts to 35% of pre-bond issuance revenues. ‘Next year, tax revenues will be less important than borrowing as a source of income. So I doubt there is any yield international capital markets can find acceptable that will not bankrupt the Japanese government.’ Any deepening of Japan’s problems will undoubtedly have massive consequences globally.
Grice, in his latest Japan update (this is a good read but quite technical**) warns that as Japan’s retirees run down their wealth, the country’s policymakers will be forced to sell down assets including US Treasuries. It currently holds around $750 billion T-Bills, or 10% of outstanding Treasury stock. ‘At the very least I would expect this to trigger an international bond market rout scary enough to spook all other asset classes,’ he says. After selling off surplus assets, the Japanese government would be forced into budget cuts, or worse still to start printing money sending the country into depression. ‘It will be a depression tomorrow whereas draconian spending cuts would be a depression today,’ Grice warns. He believes the resultant capital flight would ‘probably be enough to collapse the yen’, which would have profound implications for Asia. Perhaps the more immediate question for Grice is whether Greece will beat Japan to it, albeit with much less far-reaching consequences. http://www.citywire.co.uk/professional/-/news/market-reports/content.aspx?ID=377284&re=8138&ea=93584&Page=1 |
This is why they are recieving 9.7 billion in aid from the ODA I suppose.
But does it not surprise you how they have managed to remain in recession for the past 10 years without going completely bankrupt? They have a strong enough inport export ratio to hold off recession to the larger extent, they are servicing their debt, all be it not completely, it is enough to keep themselves above the water line.
Unlike the UK!
