politics

As debt piles up, Japan tries to lock in low borrowing costs

15 Comments
By Takaya Yamaguchi and Hideyuki Sano

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15 Comments
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Debt piling up is no problem to our Abe.

Solution's simple.

Raise taxes, spend 60 billion on an unnecessary election and build a huge superbase for the US.

1 ( +4 / -3 )

One of the few sensible moves coming out of this administration. With Japan's low birthrate, economic growth will be impossible going forward until population decline ceases, which is about when these bonds mature.

Since borrowing cost will also continue to rise as the economy suffers, policy makers should be doing everything they can to reduce Japan's reliance on imports, especially since value-added industry has been disappearing. To start, this should necessitate a faster move to sustainable and renewable energy and greater food self-sufficiency.

-1 ( +2 / -3 )

"So far, the country has no problems financing its debt, which has reached over 200 percent of gross domestic product."

This reminds me of a joke I heard from some American comedian:

"I'm going to live forever. So far, so good."

I suppose the diference is that he realised he would not really live forever.

3 ( +4 / -1 )

BertieWooster

Solution's simple Defaulting the interest payment on the bond is the simplest solution. Of course, it will be harder for Japan to borrow more from domestic investors. They will have no faith in J bonds any more.

If you are doctor, you have to make touch and painful decision for saving your patient life with amputation. For cutting the debt, saver needs to strop spending. The debt problem of J government is the chronic cancer. It has been spoiled by easy money. If the investors move their capital to offshore, government has to make painful spending cut. If they spare only aged care and disability care, the government will save a lot of money in the future.

Abe likes a spoiled son who waste his parents money for gambling such as very early election. .

-2 ( +0 / -2 )

It doesn't matter how much economic flim flam and esoteric jargon you use.

Going deeper in dept when your economy is sinking down the toilet is always an idiotic idea.

"Hey we're broke, and there's NO WAY we can pay back what we already owe. What should we do?"

"Borrow MORE!"

"GREAT idea!"

3 ( +4 / -1 )

Japan is such a hopeless economic basket case, doesn't matter what they do, there's no solution to the catastrophe they have made for themselves. Rearranging the deckchairs on the Titanic analogy comes to mind. Would all be highly amusing if it wasn't for the fact that miilions of people's lives are screwed.

2 ( +4 / -2 )

Domestic investors, with huge savings, have been happy to buy government bonds at time of deflation even as Japanese government bonds have one of the lowest yields in the world.

I'm not an expert in ANY sense of the matter but why would any investor want to lock up their money for 30~40 years with almost no interest in return? If I'm not mistaken the bonds can not be cashed-in before they reach maturity and if for some reason you have to their is a large fee attached. Who are these investors? Oh yeah, the BOJ itself along with those major backs who get strong-armed into purchasing them in return for favors in drafting legislation, tax exemptions and so on, in the future!

2 ( +3 / -1 )

Who would be foolish enough to lend money to the government at 1.4% when the same government has an inflation target of 2%? Step forward Mr Kuroda of the BOJ. Nobody else is daft enough to lock in an almost guaranteed loss over 40 years.

0 ( +1 / -1 )

The government needs to stop wasting money. They should decentralise power to the various prefectures and city. Take on a lot of the vested interests. Reduce the number of large Japanese firms. So they can be competitive. Also simplify the tax system. Income minus threshold times tax rate=tax due.

0 ( +1 / -1 )

Reza, I completely agree - and also would add the necessity of reducing government by consolidation (e.g., rid Kyushu of its prefectural governments by replacing them with a larger, more efficient body).

Still, what the doomsayers don't recognize is that it is all just money. Seriously - it is not specie, it is fiat, and thus, should the kuso hit the senpuki, the government could simply retire the debt by printing more money. Of course, this would likely result in a massive devaluation of the yen (think 400 to the dollar) - but that is comparable to the post-war rate, and Japan would, again, eventually regain its status.

Historically, economies embroiled in contradictions returned to normality via war. This is really the first time in history that this purging must be done peacefully. It will not be pretty, but it is better than the alternative.

-1 ( +1 / -2 )

"Domestic investors have been happy to buy government bonds"

Err, actually no. Domestic investors put their money in banks; it is the latter who (used to) buy the bonds.

Now even that is a side-show. The large majority of the debt issued is now bought by the BoJ; there are few genuine buyers left, just money running round in circles. The BoJ balance sheet is over 60% of GDP and growing by 15% of GDP per year. i.e. it will be close to GDP party by the end of 2016 at the current rate. For comparison, the Fed, BoE and ECB have balance sheets at about 25% of GDP. In reality, Japan is running an unprecedented and increasingly desperate policy which will surely end in failure.

Either deflation continues (the BoJ continues 'pushing on a string' and cannot stimulate new investment in an economy certain to have sluggish or zero growth due to population decline and wages carry on falling in real terms); or alternatively inflation runs rampant (the government effectively inflates its debt away by destroying the value of private sector savings). Under both scenarios, the Japanese people lose. Japan as a country will get poorer at least in relative and perhaps even absolute terms. What almost certainly will not happen is a 'soft landing' with inflation at a gentle 2% and consumers happily spending again.

An interesting secondary question is whether this process can unfold without the rise of political extremism, of the kind seen to a limited extent in recent years (defensive nationalism seeking to lay Japan's problems on foreigners).

1 ( +1 / -0 )

Yes, the BoJ have roughly triple its pace of its equity and property purchases on Japan's stock market. And what has this financial shock actually achieved, other than inflation, a weaker yen, a stock market rally, and continued international praise for Abe? Well, unfortunately nothing other than a serious recession and a growing threat of stagflation.

0 ( +1 / -1 )

So far, the country has no problems financing its debt, which has reached over 200 percent of gross domestic product.

That's because the BOJ is now "financing" it.

“From a debt management point of view, it is natural to increase long-dated bonds,” said a government official who has knowledge of the matter.

True, it's not like the debt will be paid back before 40 years is up.

why would any investor want to lock up their money for 30~40 years with almost no interest in return?

These days the primary dealers who are obliged to bid for the debt know that the BOJ will buy the debt off them later. So for those dealers it's a secure investment, but for the BOJ I'm not so sure.

0 ( +0 / -0 )

the government could simply retire the debt by printing more money

Printing more money is nothing new. If one high profile nation such as US or Japan or EU print the money, other nations will follow it. There will be currency war. The consequence is selling the export with unprofitable margin. There is not many famous Japanese co-operation are profitable now a days. Market has been forced by heavy handed intervention. It was not according the supply and demand theory.

comparable to the post-war rate, and Japan would, again, eventually regain its status

During post war era, many nations are rebuilding the ruined infrastructure. Assets price are stable and not over inflated. There were no competitors with Japan for US and EU market. If J Yen is too high, Japan will lose the competitiveness due to currency exchange. If J Yen is too low, Japan will still lose the competitiveness due to high cost of imported materials and energy.

Japan has been recession in 1991 and it has never recovered since then. Japan has never regained status as Champion of the exporter of consumer electronics and vehicles. The more debt mounted, it will follow the US model to borrow more debt for settling debt in the future. Eventually it can not sustain for interest payment. Default is the bitter pill for Japan to swallow it.

.

0 ( +0 / -0 )

"So far, the country has no problems financing its debt"

Really! Well, I'd hate to see the situation in which the country IS having problems financing its debt...

0 ( +0 / -0 )

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