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Japan debt plan needs BOJ to keep rates low for years

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By Izumi Nakagawa

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love it when the finance guys bicker! you can learn a lot about nuthin.

2 ( +3 / -1 )

This myth again. The Ministry of Finance includes the rolling over of debt (redeeming one bond and then issuing a new bond for the same amount). Debt servicing is the payment of interest and the repayment of principle. Rolling over debt is NOT debt servicing.

No, you repeating the same nonsense is "this myth again". Please stop and think a minute. Rolling over debt is "debt servicing" for two very good reasons -- first off, the debt cannot be retired, because the J-government does not have the funds to do so. So new debt is taking the place of cash which it does not have. Second, this debt is being put against old "payables", instead of to current needs of the government. Wouldn't it be great if these funds were used to solve some of Japan's massive social hurdles, rather than simply retiring old debt?

But, what you simply want to ignore is the point of this article -- debt can only be "rolled over" if their is a ready market for those bonds. And with the J-government needing to keep rates near zero, it is likely the only buyer of them in the future will be the BOJ. With their MASSIVE stimulus program. Without that, there would be either no market for that quantity of bonds -- hence no roll-over -- or rates would have to increase.

Clock is ticking folks. Needing to keep the BOJ program going through possibly 2020, when it was intended to only be in place for a couple of years when it started in 2013, is not good economic planning. It is desperation.

2 ( +5 / -3 )

Clock is ticking folks. Needing to keep the BOJ program going through possibly 2020, when it was intended to only be in place for a couple of years when it started in 2013, is not good economic planning. It is desperation

Bravo!

2 ( +2 / -0 )

Guy

You really have to do some basic reading on economics, especially in the area of fiat money.

The value of one's fiat money is determined not by oneself, but by the perception of others. If others think that fiat money is toilet paper, then your fiat money becomes such and is no longer considered a credible currency outside of your national borders

This is the historical lessons from the Romans and their Denarius, China and their 'flying money', France and their Livres, Weimer Germany and their Mark.

These are the contemporary lessons of Argentina 1932, Mexico 1994, Thailand 1997, Russia 1998 and of course Zimbabwe.

The idea that Japan has reinvented the wheel is just nonsense. There is just not one historical or contemporary example of a fiat currency beating the basic rules of international FX.

It really is as simple as that and to say because it hasn't happened today, it will never happen, is just not an argument.

At the moment Japan's fiat money, the Yen, is still a valid currency because those outside Japan believe that Japan can contain its government debt in the short term and eliminate it in the long run. It is not a valid currency because others believe that Japan is exceptionally unique and doesn't have to conform to the 'natural' rules of fiat currencies and sovereign debts: as some posters on hear keep promoting.

Once those perceptions are shattered, then.......

Debt is debt, whether I owe it to my brother or a bank.

1 ( +4 / -3 )

Guy_Jean_DailleultMay. 21, 2015 - 09:12AM JST

On August 15th, 1971, Richard Nixon ended the convertibility of the United States dollar into gold. Since then for the last almost 44 years, the world has been using a wholly 100%, non-commodity backed fiat currency system. Apparently it is impossible for the last 44 years to have happened, but actually that doesn't seem to be the case.

If you cannot see that the Japanese Yen is not the same as the US$ and why the Japanese Yen is not the same as US$, and why the Japanese Yen can't behave in a similar way to the US$, then we are much further down the economics totem pole than I initially assumed.

1 ( +5 / -4 )

That conflicts with the stance of Japan’s powerful Ministry of Finance, which has called for raising tax and cutting spending to rein in debt.

Cutting spending, and moreover, wasteful spending is smart. Raising taxes: stupid.

Tax increases would slow the economy down, or, worse, send it into a recession. The argument that taxes have to be raised is fallacious. It assumes Japanese people don't pay enough taxes. Like many citizens of the developed world, people in Japan lose much of their income to taxes.

BOJ Governor Haruhiko Kuroda, a former finance ministry bureaucrat, has repeatedly called on the government to speed up reforms, including through raising the sales tax.

The government would be wise to ignore Kuroda, and focus on fixing the economy. Higher value-added taxes (VATs) only hurt the economy, especially low income earners, and the poor. VATs also work to bring down demand discretionary goods and services.

Unless the government cuts personal incomes taxes, and businesses taxes in proportion to the increase in costs VATs cause, then the consumption tax should stay at 8% (although 5% was perfectly reasonable).

The world economy has gone well beyond the ability of taxation to affect positive change. Kicking working people and business in the teeth isn't the way to revive the economy.

Raising taxes is something governments all the world have done for centuries. The results we see today: a sluggish world economy being crushed by gargantuan debt.

Cut spending, lower income taxes, business taxes, liberalize the Japanese market, and open the economy to more active, free trade, and there will be far more positive results.

A long term step would be to encourage more entrepreneurial activity. Japan has a relatively small number of entrepreneurs because the young are brainwashed into the idea that they must work for a "big company". This is not to say a steady job is a bad thing, but, it's not the only option.

Entrepreneurship brings about innovation, jobs, and ultimately, more taxable income and profits for government in the long term.

1 ( +2 / -1 )

force the bank to maintain its massive monetary stimulus for longer than it wants.

That was the problem from the very outset of Kuroda's crazy idea, as Noriko Hama and other economists stated years ago.

It wasn't that Japan couldn't eventually create a 2% inflation rate, although nearly everyone apart from Kuroda accurately said it couldn't be done in the 2 year period, it was what would happen after that 2% inflation rate had been created and how the Bank of Japan could wind down on its QE.

The conclusion Hama and others came to, was that it couldn't and the eventual conclusion to the madness was that the Japanese government would have to default on its sovereign debt, taking all the savings of the Japanese with them.

By 2017, all of the savings of the Japanese will be invested in the government debt. Previously this was going to happen through private institutions such as the banks, pension fund and the post office. Thanks to Kuroda's actions, it will now be done through the BOJ, which is now the biggest holder of government debt, 20%, and will be 30% by the end of 2015.

If you have an hour to spare, watch this video of Hama. It was filmed 2 years ago at the Japanese Foreign Correspondents Club, but she has been proven to be frighteningly accurate.

https://www.youtube.com/watch?v=a29FTJXYev0

-1 ( +3 / -4 )

There is just not one historical or contemporary example of a fiat currency beating the basic rules of international FX

On August 15th, 1971, Richard Nixon ended the convertibility of the United States dollar into gold. Since then for the last almost 44 years, the world has been using a wholly 100%, non-commodity backed fiat currency system. Apparently it is impossible for the last 44 years to have happened, but actually that doesn't seem to be the case. It ain't me that needs to do some basic reading.

-5 ( +3 / -8 )

A sure sign of an idiot is when they double down on the stupid, and that is what is going on here.

Shinzo Abe’s plan to cut the country’s debt pile will rely on the Bank of Japan keeping government bond yields low for years to come

Japan does not have a debt "pile" or "burden", and its finances are not "tattered", no matter how much journalists love to use scary sounding adjectives in every single nonsensical article they write. It has a high amount of yen issued relative to GDP, and that high ratio a symptom of the fact they are not running the economy properly, not the cause of the sickness itself. The "debt" is nothing more than the amount of yen issued by the government which, by law, must be matched by an equivalent issuance of government bonds. They can issue as much or as little as they want. If anybody doubts that they are free to explain where the yen to buy Japanese government bonds comes from. Also they should have no trouble keeping the yields low considering that is what they have been doing for OVER 20 YEARS!!!

debt servicing takes up nearly a quarter of government spending

This myth again. The Ministry of Finance includes the rolling over of debt (redeeming one bond and then issuing a new bond for the same amount). Debt servicing is the payment of interest and the repayment of principle. Rolling over debt is NOT debt servicing. Whether the MOF makes this false claim to scare people into accepting their wacko ideological agenda or because they are just stupid is the question reporters should be asking.

The central bank now expects Japan to hit 2% inflation in the fiscal year ending in March 2017

In Kuroda's dreams only. Shirakawa told Abe flat out the BOJ did not have the tools to create 2% inflation, and he has been and will continue to be proven correct.

-6 ( +4 / -10 )

Yeah, whatever. A good chunk of Japan's debt (at least 20%) is owned by the Japanese Government itself and only 5% is external. Of course you people live in Japan, teach English, yet feel free to bash the country.

Japan still has, a very good education system, socialized healthcare, is still a leader in technology, has a world-renowned culture (both traditional and pop), Of course, economic growth is the be all and end all of human existence, right?

-7 ( +0 / -7 )

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