For Japan, lesson from Greek crisis is to keep on spending

Right on. Austerity doesn't work when you're not having strong steady growth. In fact, it can trash your economy, as Greece shows. And also as Japan showed, when the consumption tax was hiked. Hello, recession!

"the need for fiscal discipline."

Please, Reuters writers, explain what specifically this "need" is for Japan, given that all its debts are in a currency it controls. The entire underlying of your fairly lengthy articles is left a mystery. Surreal.

The article ls laughable.

Of course policy makers and economists in their employ are going to say that Japan is not as bad off as Greece. "Policy makers" mean "politicians", and politicians will tell the people what they want to hear, or what they want them to hear, and as we all know from centuries of experience, this is seldom the truth. In reality these policy makers and their paid economists must be shaking in their boots.

Japanese companies are for from competitive, with the exception of the big automakers, who are largely divested from the Japanese economy. Domestic Japanese companies for the most part are unprofitable, many are sitting on debts. Toyota Japan, Nissan Japan, Subaru Japan, et al all posted losses in domestic Japanese sales last year, this year, the year before last year, and several years before that. Sony, Sharp, Panasonic, Hitachi, and so on, are all in debt up to their ears.

Next, the Japanese are saving less. The largest buyer of Japanese bonds is no longer the Japanese people, or the Japanese institutional investors, but the the Bank of Japan itself. In one way, this is worse than the Greek situation.

Next, Japan's population is falling by hundreds of thousands per year, decreasing the pool of consumers, which in turn reduces the tax revenue they produce. The remaining population is older and sicker, less productive, and heavily consumes public services. The younger population is become much less numerous, and as younger workers provide most of the tax revenue to pay for the government's spending, we can see that Japan will have to be spending much more in the future while revenue resources dwindle.

Interest rates must remain low, and don't look at the government raising rates any time soon, even if they achieve the inflation they are looking for. Even a small increase in rates will make debt servicing costs increase by a large amount, and debt servicing costs already consume 26% of all tax revenue collected.

Like Greece, Japan is a resource-poor country. In the past Japan's economy grew because Japan's labor cost was lower than America or Europe, and there were no other large competitors for low-cost manufacturing. This is no longer the case. Throughout Asia there are now countries which can produce quality goods for lower prices than Japan.

Japan needs to look much closer at the Greek collapse, and must begin becoming more fiscally responsible.

Difference between Greek and Japan was Greek Government borrows money from International lenders and Japanese Government borrows money from its own peoples. Greek Government has no chance of printing its own money as long as it stays inside EU. Greek has to follow EU rule and law. In some case, EU over-write Greek's law. Japanese Government was 100% independent Government while Greek Government wasn’t.

I don’t worry about Japanese Government’s debt but I’m more worry about US Government’s debt.

For Japan, lesson from Greek crisis is to keep on spending

Interesting article, two women writers go on spending spree !

"I don’t worry about Japanese Government’s debt but I’m more worry about US Government’s debt."

Agree with everything you said but not this comment. US is the largest and most diverse world economy. Don't believe the doomsayers (mostly politicians looking to get elected and rightwingers). As for Japan, I think the combination should be targeted spending to spur growth, targeted spending cuts aimed at fat that serves no purpose, and targeted tax hikes on those (both individual and corporate) that can afford it.

Agree with everything you said but not this comment. US is the largest and most diverse world economy

For the time being...

Im broke. And bought many fancy things.. ihave noticed that im always broke.

Unlike Greece, nobody should be worried about Japan paying back the nominal amount of its debt. The Bank of Japan will always keep printing money and bailing out the government. If the government has promised you a 100,000yen pension, there is no question that they will be able to pay. The question is how much you will be able to buy with that 100,000. The real suffering will come when the yen falls to 500 or 1000 against the dollar and you realise that the value of your saving and pension has been inflated away.

When the government doesn't control the printing press like in Greece, the government can't do this. Most Greeks actually want to keep the the Euro because it's like a giant padlock on their savings and pensions which the Greek government can't break into when times get tough. Greece should just declare bankruptcy and default on the international banks and other creditors but also try to stay in the Euro. Greece is actually running a budget surplus if you remove all the interest payments.

While it's good to see that at least a few members of the Japanese government are not completely off in economic LaLa land in terms of "solutions", the real lesson of Greece is that what has happened there has almost no applicability to Japan's situation. Greece's problems, same as Spain, Portugal, Italy, and Ireland were caused by joining a currency union that drained money out of their country and into the pockets of their currency union "partners". It was made worse when private loans made by banks in those "partner" countries went bad and were transferred onto the books of each government and the loses socialized in order to save these banks from bankruptcy. Neither point has any relevance to Japan.

But the tiny European country still has some resonance for Japan which, like Greece, has delayed tough fiscal reforms and pension cuts as lawmakers worried about losing votes.

The writer of course tries to make a connection between the countries by parroting the line that Greece's problems were caused by failure to make fiscal reforms and this gives "resonance" to Japan's situation. Wrong on several counts. One, Greece did implement fiscal reforms, and got a collapse in GDP and massive unemployment as a result. (This is the course the Doomers want Japan to follow, in order to avoid....COLLAPSE!!!). Two, while Greece had issues that made the problem worse, they did not cause the problem. Other EU countries such as Spain and Ireland were textbook examples of what mainstream economists call "fiscal discipline", and they ended up in the exact same mess. The only area where there are lessons to be learned for Japan is in the area of taxation. Tax evasion in Greece has been blamed as a cause of the high Debt to GDP ratio. In other words money is being hoarded. However, in Japan, the hoarding of money is THE SOLE REASON for the high Debt to GDP ratio, not the usual out-of-control spending rubbish that is usually blamed. It can be seen right there on the massive amounts of cash held on corporate balance sheets. However, in Greece, such hoarding is considered bad, and tax collection must be increased on those evil rich people. In Japan, hoarding is considered tax collection must be reduced on the good, job creating rich people and corporations too motivate them to create wealth for the little people. Meanwhile, the economic effects of tax evasion and tax cuts are exactly the same. Cognitive dissonance gone insane

you don't have to be a chief economist to contradict this thought..just common sense... how can you expect people to spend if they don't have enough money and job stability?

Improve the labor system, stop the franchising and contractual jobs, pay the people higher... and then people will be confident to spend again.

Japan never learns from anything, be it mistakes they've made themselves or others. Yeah, a country that spent too much and is now broke is "proof that we must spend more"! Morons.

Kobuta Chan,

Difference between Greek and Japan

Japan's government borrows from the central bank these days, but generally speaking whether the lenders are domestic or not, they do expect to get their money back without getting screwed over.

Greek Government has no chance of printing its own money

Printing money to pay off debts is a very very bad idea anyway, which officially at least is illegal in Japan because of past experiences with the practice.

I don’t worry about Japanese Government’s debt but I’m more worry about US Government’s debt.

The US does have big debts - but their government does display the ability to control spending. Its budget deficits have shrunk significantly in recent years.

sangetsu03,

The article ls laughable.

The article was good actually, what is laughable is the government's "plan".

The largest buyer of Japanese bonds is ... the Bank of Japan itself. In one way, this is worse than the Greek situation.

It's just a different choice of poison. The law would have it that Japan can not choose this type of poison any more, but under the guise of "inflation targeting" they are perhaps intentionally subverting the law anyway. Time will tell.

debt servicing costs already consume 26% of all tax revenue collected.

Worse, it's 26% of expenditure, not tax revenue!

Japan needs to look much closer at the Greek collapse, and must begin becoming more fiscally responsible.

Hear hear.

M3M3M3,

Unlike Greece, nobody should be worried about Japan paying back the nominal amount of its debt. The Bank of Japan will always keep printing money and bailing out the government.

Not guaranteed, but one does get the impression that this will be the case, unfortunately.

The question is how much you will be able to buy with that 100,000.

Bingo.

JeffLee...

Please, Reuters writers, explain what specifically this "need" is for Japan

It needs no explanation for 99% of readers who are not in denial of history and reality. If you don't like what you read in the media, my advice is for you not to read it, and not to comment on it.

Interest payments are a component of debt servicing, debt servicing is circa 25%. interest payments are less. Get over it.

Austrity can work if you have your own currency. UK is a good example - not great but good. continued borrow and spend (wastefully) policies will end in tears.

Im broke. And bought many fancy things.. ihave noticed that im always broke.

You must go into debt to keep our economy growing-That's the capitalist way!

Rolling over of debt is not "debt servicing". Rolling over of debt is counted by the MOF as " debt servicing". They are intentionally putting out false information. Period.

I am avidly perusing my battery operated revolving globe atlas, wondering if overnight the Japanese archipelago hadn't up-sticks and alighted alongside the British Isles, decided to join the single currency, allowing the co-ordination of macro-economic policies be coordinated be a superannuated body, set a budget limit of no more than 3% of GDP, instituted the fiscal compact, and was considering joined a banking union, allowing financial liabilities to be mutualised, losing economic sovereignty.......

What are these intense fears of horror, and distress....... Phew I've woken up just a terrible nightmare, nothing to fear.........What Japan’s economy minister Akira Amari on about?

One thing, Abe San could take something larger than a tooth pick to wasteful government spending, the issues of depopulation need to be thoroughly addressed, and where's that third arrow?

As people point out, Japanese debt is almost exclusively domestic. Another point is that if you net off the government's net assets, the debt to GDP ratio is more like 100%, like the US, not great but still not nearly as bad as it looks. The government's assets include all the state enterprises set up after the war and were privatized but in which the government holds a majority stake (like the trains and subways, tobacco and salt, etc etc etc.

UK is a good (austerity) example

500,000 food bank users might not agree.

"The question is how much you will be able to buy with that 100,000."

I can buy more with that amount now than I could 15 years ago, before Japan started its loose monetary policy (ie "money printing").

A coffee on the Ginza used to be 800 yen. Now it's 400. That's called "deflation." And it, as opposed to "inflation," is Japan's leading economic problem.

They are intentionally putting out false information. Period.

A delightful assertion of scandalous misbehavior by the Ministry of Finance...

Definitions of debt service are easy enough to come by for the capable.

Yet we would be led to believe that not only is the Ministry being deceitful, so too is Google! Devils, all of them! Credibility of such comments by a Japan Today commenter versus the Ministry, Google, all the rest? Zero.

Japan's situation is certainly unique, but I fear that both sides of the debate oversimplify the issue. The obvious difference between Greece and Japan is that Greece was saddled with the Euro, while Japan is free to print money ad libitum - or so Krugman et al. would suggest. I disagree. Having a sovereign currency might buy Japan a little extra time, but the more money that gets printed, the lower the yen will tumble. In a resource-poor country like this one, that matters.

Aggressive fiscal policy only helps a small segment of the economy, and that segment has proven itself unwilling to share the benefits. In fact, Toyota went one step further to ensure that it made from Abenomics finds its way out of Japan... they celebrated record breaking profits by opening factories in China and Mexico. The stated goal of Abenomics is to kickstart the economy by boosting inflation - but once prices go up, spending goes down. Granted, a big part of the plan was pushing companies to boost employee wages, but I have yet to meet a non-government worker who benefited from a post-Abenomics wage increase. So what happens? Companies strengthen their bottom lines, the people that work for them get a hearty, "otsukare samadeshita!" for their troubles and everything gets a lot more expensive.

Two interesting articles appeared in Japan Today on June 17th. The first titled, "Japan post y216 trade deficit in May" and the other "BOJ to debate weak yen." A recent automotive reliability study that showed Japanese cars falling in quality when compared to their competition and how they were trumped by Korea.

Both Kia and Hyundia blew them out of the water, even American automobiles are faring much better. The picture of Japan's future is both cloudy and complicated by the combination of its massive still growing national debt, an aging population, and their heavy reliance on exports. More on this subject in the article below.

http://brucewilds.blogspot.com/2015/06/japan-economy-is-in-corner.html

when you have a corrupt government that had a second chance, but wants two more years, there is no lesson. Let Greece go bankrupt.

paulinusa JUL. 01, 2015 - 08:04 AM JST

US is the largest and most diverse world economy.

It is entirely true. US is the founding father of digital revolution. It has been rewarded with highly competitive and profitable organization such as Apple, Google, Sun Micro system and Microsoft. However their profits have not contributed for shrinking sky rocketing deficits of national revenue and trade.

Last year, many economists predicted US will overtake Saudi as leading energy supplier thanks to Shale Gas revolution. However it will not become overnight because worldwide market demand is not strong enough for lifting US export volume.

Don't believe the doomsayers (mostly politicians looking to get elected and rightwingers).

The root cause of US sky-rocketing debt has been created by successive US politicians who have been spending more than what they earn. Back in 1970s, US has been almost debt free nation. In 2030, US debt level will more than 30 trillions dollars.

If US dollar is not reserve currency of the world, US debt level is unsustainable as Greece. Unlike US, Japan can default the debt of domestic investors over medium term like South Korean did during the Asian financial crisis.

US foreign debt is more than 18 trillions and keep rising because populist government has not refrained from keep spending. As a superpower, US has never refrained from spending. Every year US congress has to raise debt ceiling limit for paying the interest of bonds.

From the bottom of her heart, Angle Merkel knew that Greece will never be able to pay the huge debt. However she is keep footing the bail out for stability and unity of EU.

From the bottom of their heart, US creditors Saudi, Japan and China know that US can not afford to repay the more 18 trillions dollars within ten generations. However they want the stability of US banking system and assume their money will be safer in US treasury bonds rather than other investment option.

However it will not last forever. If US will keep spending like Greece as no more tomorrows, investors will not risk their money. They will find the alternative way for their saving.

The fundamental weakness of democratic system is very slow and touch to reform. US needs the fiscal disciplines rather than spending for universal health care and welfare for illegal immigrants for winning more votes.

Rolling over of debt is not "debt servicing". Rolling over of debt is counted by the MOF as " debt servicing". They are intentionally putting out false information. Period.

Guy -- when will you stop repeating the same nonsense myself and others have proven on many occasions is just plain wrong? Period. But, here, one more time, is the defintion of "debt servicing" from Investopedia.com:

DEFINITION of 'Debt Service' The cash that is required for a particular time period to cover the repayment of interest and principal on a debt.

Since Japan does not have the cash to pay back this amount, it is forced to issue new debt, or roll-over, debt to cover its obligations. Why is that so hard for someone who professes to understand economics so tough to grasp? Could it be simply because it does not fit your hair-brained theory on Japanese finances?

In any case, here are the two smartest comments of this article:

“You get more room for policy flexibility if you get fiscal reforms done in a short period of time,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

“By focusing too much on the current state of the economy, you risk under-estimating the fiscal risks that may threaten future growth.”

Kumano is spot on. It is fine for Japan to focus on growth, and not make the same mistake as Greece. But simply kicking-the-can down the road on reducing the debt is not the answer either.

Zenpun JUL. 01, 2015 - 12:24PM JST US foreign debt is more than 18 trillions and keep rising because populist government has not refrained from keep spending. As a superpower, US has never refrained from spending. Every year US congress has to raise debt ceiling limit for paying the interest of bonds.

What is your point from your copy/paste info? There is not a thing China or any other country can to do mess up U.S. economy by ‘manipulating the dollar’ or ‘dumping tens of billions of T-Bills’ into the market. The Fed has the power to offset any inflationary or deflationary disturbance that originates outside the dollar realm.

Well said jerseyboy.

What amuses me is that some people like to say that "Japan is not Greece", and yet here we are seeing comments about why Japan should not do what Greece has done... Japan either is like Greece or it isn't. I'm glad that Amari thinks Japan is at least comparable, even if his policy prescription seems to me to be more wishful thinking than reality.

“They didn’t get the balance right,” says one advisor. But who trusts Japan's politicians to get the balance right?

The growth boosting 3rd arrow has been sorely lacking, "flexible" fiscal spending hasn't produced sustainable growth (same story as for the previous 2 decades), and what we have to show for Abenomics is the BOJ effectively bank-rolling the government's spending under the guise of inflation targeting.

The real lesson from Greece is don't screw yourself over in the first place.

"Since Japan does not have he cash"... LOL, another wizard who does not know where money comes from claiming there isn't any. As for the comic insistance that debt roll overs are debt servicing and that this is A VERY SERIOUS PROBLEM, Japan can just issue all new bonds to mature in 100 years. Problem solved.

Guy_Jean_Dailleul JUL. 01, 2015 - 12:57PM JST "Since Japan does not have he cash"... LOL, another wizard who does not know where money comes from claiming there isn't any.

Japan doesn't have the cash? The how do you explain this? Japan just passed China as the biggest US creditor for the first time since 2008.

Associated Press Apr. 16, 2015

http://www.businessinsider.com/japan-just-passed-china-as-the-biggest-us-creditor-since-2008-2015-4#ixzz3eboUNjQO

sfjp330

Any proof that I copied/pasted info? US economy is not export driven economy because lacking competitiveness. If you have been Ghost town of Detrioit, manufacturing is history in US of the A. Apple products are best sellers however all of the hardware parts are sourced and assembled in Asia.

Alan Greenspan has admitted he has made many errors during his term. Low interest rates encouraged unsustainable borrowing and risky assets investments. US federal offset the inflation due to foreigners buying treasury bonds. Foreigners have not patriotic duties for keep holding the investment unless they are getting regular interest payments.

At the moment, Greece is unable the meet the payment of IMF. US federal treasury has no magic wand for getting trade surplus and federal budget surplus. If US can not meet the repayment as Greece, the fate has been sealed as capital flight during 1997 Asian financial crisis.

If you spend more than you earn, you have to borrow for footing the bill. If you keep spending more than you earn, you have to pay the interest bill with newly borrowed loans. Compounded interest will be keep rising of loan amount until you have no point of meeting your debt obligation unless selling your assets for honouring the debt.

Argentina has gut to default back in 2003. US will share the same fate unless there are tougher fiscal disciplines (spending cuts) and raising the revenue with new taxes or exports.

Hope you will accept the reality of the chronic debt ridden nations. We do not live in fairy world.

@Christopher Scott Magor

The stated goal of Abenomics is to kickstart the economy by boosting inflation - but once prices go up, spending goes down. Granted, a big part of the plan was pushing companies to boost employee wages, but I have yet to meet a non-government worker who benefited from a post-Abenomics wage increase. So what happens? Companies strengthen their bottom lines, the people that work for them get a hearty, "otsukare samadeshita!" for their troubles and everything gets a lot more expensive.

THIS. Those on here painting a "not so bad" picture of Japan compared to Greece don't know the half of it. As heartbreaking as it is, we all know that Japan does things Japan's way and will never change. Never in a million years. It could be on the brink of total collapse, with lifeline offers from left and right, and will still maintain its stubborn ways. It goes beyond economic policy. This is the harsh reality - and let's not forget that Japan is an island nation. Japan has been stuck in "post-war industrialisation" mode since... post-war times. It's writing corrupted, crony-bound cheques that it's population can't cash.

ZenpunJUL. 01, 2015 - 01:04PM JST Any proof that I copied/pasted info? US economy is not export driven economy because lacking competitiveness. If you have been Ghost town of Detroit, manufacturing is history in US of the A. Apple products are best sellers however all of the hardware parts are sourced and assembled in Asia.

Your wrong. U.S. companies does not lack competitiveness. It's more of cost factor. Simply put U.S. do not produce anything anymore. Why? Because top executives gets rewarded for profit that company can attain maximium profit at the bottom line on a annual basis. If you didn't know, the executives look at the bottom line for the cost and efficency. It's possible in China for now or other third world countries, but It's practically impossible manufacture in U.S.with all the rules.

U.S. buy tons of foreign goods and then wonder why we are lacking jobs. U.S. import most of goods from China which has resulted in a huge trade deficit and industrial job losses. The decline is due to increased employment overseas. U.S. manufacturing job losses is attributed with a growing trade deficit. That most jobs resulting from new technologies are being created overseas. This will not change in a short term.

A lot of rancor here. Let's revisit this topic in the near future and see who is right.

If Japan defaults (after running out of its own money), or suffers some kind of internal monetary or fiscal crisis, jersey, fx and all the others will be right.

If it doesn't, and continues on its low-growth, but also low-inflation way, barring an external shock, then me, guy, etc. will be right. I sure wish we could place bets on this forum.

how can you expect people to spend if they don't have enough money and job stability?

How can you expect people to make actual purchases when their money is worthless?

Zenpun JUL. 01, 2015 - 01:04PM JST Alan Greenspan has admitted he has made many errors during his term. Low interest rates encouraged unsustainable borrowing and risky assets investments.

Low interest if fine. It was more about banks not doing a better job screening out people that were not qualified for these type of loans.

I am half-Japanese and would love to visit Japan more and spend money there. There are many of us who would enjoy that. Maybe some who are 1/4 or 1/8 Japanese would like to work there. I don't like US spending on welfare - especially for illegals. The government is run by bureaucrats who design the spending on welfare recipients who produce nothing (possibly more crime). All the bureaucrats care about is their own careers - they avoid the poor in their personal lives. If you think Japan is not productive enough, the US has millions and millions of unproductive people. I would love to hire some of your citizens.

GJD,

Japan can just issue all new bonds to mature in 100 years. Problem solved.

Yup... no blindingly obvious flaws with that strategy... You could win a Noble prize with that for sure...

JL,

Let's revisit this topic in the near future and see who is right.

Putting a timeline on it is like thinking that a volcano that hasn't erupted by an arbitrarily chosen date, never will.

I sure wish we could place bets on this forum.

Well you are welcome to bet your pride, but I assume you are betting your personal wealth on your views as well. To date, my actual "bets" have served me relatively well these past few years of Abenomics, certainly better than had I been following your doctrine instead. My life isn't over yet, of course.

@Guy_Jean_Dailleult There are not too many compelling reasons to buy JGBs. I am going to bet that they start becoming a lot harder to sell.

Name Yield GTJPY2Y:GOV JGB 2 Year Yield -0.01% GTJPY5Y:GOV JGB 5 Year Yield 0.12% GTJPY10Y:GOV JGB 10 Year Yield 0.45% GTJPY30Y:GOV JGB 30 Year Yield 1.42%

Its about timing and sequence.

Japanese government keeps piling up debts. It borrows from Japanese people via their savings. One day the accumulated debts will be more than accumulated household savings. This trend is strong and clear as population aged and declined, while more pensions need to be paid. Ceteris paribus, crisis comes.

Japanese government keeps piling up debts. It borrows from Japanese corporates via taxes, etc. One day overall Japanese corporates will not be competitive and have lesser profits to pay taxes. Ceteris paribus, crisis comes.

Japanese government keeps piling up debts. BOJ tries to help by monetizing the debts. This is temporary sustainable, when households & corporates are still major contributors to cover the debts. Once BOJ is the major holder of all government debts (currently 35% and almost buyer of all new issues), debt interest rates will shoot up, confidence broken...and Japan will trend to be Zimbabwe or Argentina or Greece. MOF will also have to start drawing down on foreign reserves and sell overseas assets to defend the Yen.

Above scenario is not will, but when if current government spending trend continues.

Since Japan does not have the cash

Japan is sitting on 1 quadrillion yen of cash. That is a fact. Honestly, jerseyboy, I'm flattered you care so much for Japan even though you live in the States. However, I would agree with Guy in this matter. I will be here for the foreseeable future as I have family and real estate here in Japan. The yen will not become "toilet paper," nor will Japan "default."

I don’t worry about Japanese Government’s debt but I’m more worry about US Government’s debt.

America is a large country with vast material, agricultural, technological, energy, and human resources. Ample land allows ample room for growth, continued population growth insures that there will be economic growth and increased demand for for future growth.

In Japan the population is in decline, debt vs GDP ratio is double that of America, Japan has no material, agricultural or energy resources. The leading cause of death of young Japanese men is suicide.

Rolling over of debt is not "debt servicing". Rolling over of debt is counted by the MOF as " debt servicing". They are intentionally putting out false information. Period.

Rolling over debt means they are simply borrowing money to pay current bills, and then having to pay that money again later on. Kind of like paying your credit card bill by charging the balance to another credit card. This in no way reduces the debt, in fact, since the debt is not paid, and the balance is rolled over, it continues to grow.

Japan doesn't have the cash? The how do you explain this? Japan just passed China as the biggest US creditor for the first time since 2008.

Did you read the article you posted? Though Japan has moved ahead of China as the largest holder of American debt, Japan's holdings of American debt decreased by more than 1%. The only reason Japan moved ahead is because China's holdings decreased even more. It says volumes about the confidence the world has in America to pay it's debts that Japan and China hold so much of America's debt.

What would happen if Japan tried to sell Japanese government bonds (debt) on the international market? At the current rates the bonds pay, no one would by them.

"To date, my actual "bets" have served me relatively well these past few years of Abenomics, "

Really? Because for nearly 15 years, legions of investors have been burned by shorting Japan. It's the "widow trade". YOu know what that is, right? Shorting Japanese bonds in the belief that Japan's fiscal situation is unsustainable. Sadly for them, none of the predictions about Japan's debt crisis have come close to coming true...and they've lost their collective shirt.

"certainly better than had I been following your doctrine instead."

Really? So I take it the Japanese stock market rising 100% over the past 2 years -- despite all that debt and lack of reform -- has completely escaped your notice? If you'Re making money then you would have to be taking a position starkly at odds with your opinions as expressed on this forum.

Personally, I think that the only way that Japan can go is to embrace the downward spiral, and to try to soften the landing as much as possible.

The population is rapidly aging and healthcare and pension costs are set to become a major burden. This problem will peak in the next 10 years - 25 years from now, Japan will have a much smaller population. Barring increased immigration, that is something that cannot be avoided.

Is there really any way to maintain economic growth with a falling population? Perhaps a better way to go would be to for Japan to position itself to ride out the inevitable descent and come up leaner and stronger. I have a real issue with the binary positions that people are proposing. The government needs to keep spending, but it also needs to stop wasting. What is the point in propping up manufacturers like Toyota when they use their extra profits to set up factories in other countries?

The government needs to realize that working people are just as much a part of the economic engine as the companies who employ them.

In some future, after a prolonged worldwide liquidity crisis and in order to 'reset' the economy, we will introduce the New Yen. Similarly to the way the Sen was abandoned 60 years ago, several digits will be shaved off the current Yen. So, perhaps, one NY will be nominally worth current 1000 Yen or 10000 Yen.

JeffLee,

"To date, my actual "bets" have served me relatively well these past few years of Abenomics, "

Really? Because for nearly 15 years,

Abenomics is only approaching 3 years. It was late 2012 when I got my "insurance" against the policies Abe proclaimed he would implement. Fortunately today I don't have a widow.

"certainly better than had I been following your doctrine instead."

Really? So I take it the Japanese stock market rising 100% over the past 2 years

I have exposure to the Japanese stock market, for now. It's been OK as a means of standing still. As for money not in the Japanese stock market, there have been better things to do with it than keep it in "safe haven yen". The tax man knows.

500,000 food bank users might not agree.

I knew someone who quit working as a volunteer at a food bank - the 'clients' were often overweight smokers who spent their money on booze....

Rolling over debt means they are simply borrowing money to pay current bills, and then having to pay that money again later on. Kind of like paying your credit card bill by charging the balance to another credit card. This in no way reduces the debt, in fact, since the debt is not paid, and the balance is rolled over, it continues to grow.

Here is what actually happens when the government of Japan issues a Japan government bond. A bank account is debited and a Japan government bond account is credited. When the bond matures, a bank account is credited and a Japan government bond account is debited. A new bond is then issued, and a bank account is debited and a Japan government bond account is credited. And that is all that happens.

As for the debt not being paid, this is correct. Therefore it is not debt servicing. "Debt servicing" is when the debt (principal) or interest is being paid. Except according to several individuals on this comments board and the employees of the Japanese Ministry of Finance.

Putting a timeline on it is like thinking that a volcano that hasn't erupted by an arbitrarily chosen date, never will.

Apparently an economy acts the same as a volcanic eruption. Even though one is a human designed and engineered system, and one is the result of still not well understood forces of physics, nature, and earth science. Yep, they're exactly the same, and it is impossible to understand one at a far higher level than the other.

Ok. I'm sure I'm gonna get multiple thumbs down for what I'm about to say because it may sound simplistic and jingoistic but what the heck. Does anybody remember Aeosop's tale about the ant and the grasshopper? Well, Greeks have always been grasshoppers. Germany is the current ant. Which category does Japan fit into? Bottom line, Japan ain't Greece. I sincerely hope so for my own sake.

They better keep on spending. The Gaikan ring road isn't even half finished.

Here is what actually happens when the government of Japan issues a Japan government bond.

Yeah, just gloss over minor details such as there actually being demand to buy these bonds and at what prices.

Oh but silly me, the central bank is buying all the debt, so all is well, and the perfect plan is complete! All past failures were due to some other completely unrelated misfortune, which the whole developed world misunderstood.

The plausibility is very low, needless to say. If you did actually understand markets to the extent that you make out you do, you'd not be posting such nonsense comments on Japan Today, but rather sailing your super yacht around the Mediterranean, perhaps buying up Greek islands. But yours appears to be a superficial understanding that doesn't match with what actually occurs in reality. No super yacht, no buying up Greek islands. Just nonsense comments at Japan Today.

It is no lessons for Japan from economical crisis in Greece (two VERY different countries with absolutely different economies ) despite one: to protect your own interests you schould be INDEPENDENT. If somebody deside what you schould do - you are dead man/country

@JeffLee

A coffee on the Ginza used to be 800 yen. Now it's 400. That's called "deflation." And it, as opposed to "inflation," is Japan's leading economic problem.

That's true Jeff, but prices aren't going to fall to zero. I'd be more interested in the wholesale price of coffee beans rather than the finished coffee in Ginza. The fact that some Japanese producers have the flexibility to maintain or even lower their prices over the years, even after the yen has collapsed from 76 to 125, can also be a symptom of a very uncompetitive and inefficient market. There is alot if extraordinary profit baked into the price of many Japanese goods that needs to disappear before you actually see the inflation show up in prices.

"even after the yen has collapsed from 76 to 125,"

The yen didn't "collapse" at 125. The 76 rate was the extraordinary one.... an all-time record high and utterly unsustainable, and the result of rampant action by speculators. 125 is more in line with historical norms.

"a very uncompetitive and inefficient market."

Our grocery shopping bill at Seiyu is considerably lower now than at our previous local market, 15 years ago. That would be a sign of market becoming more competitive and efficient, a trend that I, at least, expect to continue.

"There is alot if extraordinary profit baked into the price of many Japanese goods that needs to disappear before you actually see the inflation show up in prices."

A trend that would lower prices...and hence cause inflation?! Well, I'm certainly having trouble with that one.

@JeffLee

A trend that would lower prices...and hence cause inflation?! Well, I'm certainly having trouble with that one.

Lower prices certainly don't cause inflation. I'm stating that prices aren't always an accurate indicator of inflation where profit margins are high. Producers may choose to absorb any inflation in raw materials if passing it on would mean their customers go elsewhere.

Our grocery shopping bill at Seiyu is considerably lower now than at our previous local market, 15 years ago.

That doesn't surprise me all that much since Seiyu is the Japanese subsidiary of WalMart. They probably have a much leaner supply chain than many of their Japanese competitors.

125 is more in line with historical norms.

True, but the Japanese economy is changing so you can't expect to go back to historical norms. A shrinking and aging population drawing down its savings is not the historical norm either.

I agree with you that deflation is a problem. But it's more of a long term problem for the government who wants to inflate away the debt so that they can borrow more, rather than a short term problem for the average family who is renting an apartment and trying to feed their children. Personally, as someone with 2 fixed rate mortgages in Japan, I would love to see inflation skyrocket but it's not something that would benefit most people.

If you did actually understand markets to the extent that you make out you do, you'd not be posting such nonsense comments on Japan Today, but rather sailing your super yacht around the Mediterranean, perhaps buying up Greek islands.

Oh, the irony of being lectured about posting nonsense comments on Japan Today. As for the predictable "if you're so smart why aren't you...?" line, well I discovered the the real world a little later than others, but trust me more than a few yachts have been bought by people who actually understand the monetary system. In any case, that is irrelevant to the Japan bond situation, as there is no money to be made from prices that never go anywhere outside of a narrow range and never will. There is, on the contrary lots of money to be lost by the Chicken Littles who just KNOW that, in the immortal words of noted Widowmaker carcass Kyle Bass, "ONE DAY YOU'RE GONNA RUN OUT OF ROAD" who then get wiped out when prices go EVEN HIGHER. A financially illiterate farce that has been going on for over 20 years. Reality, you should give it a try...

If you did actually understand markets to the extent that you make out you do, you'd not be posting such nonsense comments on Japan Today, but rather sailing your super yacht around the Mediterranean

Ha ha, that's funny. Same could be said of many posters here, like sangetsu who claims to run a business in Japan but spends the whole day writing comments on JT, or umbrella who "made millions" trading currencies and predicted the yen would hit 140 yen soon ... last year.

an all-time record high and utterly unsustainable and the result of rampant action by speculators. 125 is more in line with historical norms.

The yen wasn't strong because of speculators so much as it was because the yen used to be a safe haven (as you often hark back to), and Japan had enjoyed price stability (but then came Abenomics).

As M3M3M3 noted, things change over time. Over very long periods such as since when the yen first floated, nominal exchange rates change for reasons other than speculation (which has a net-net negligible effect long term, since speculators both buy and sell in the short term in order to realise profits/losses). Long term the primary factor is inflation differentials (medium term there are ups and down due to other factors). Those nations with higher levels of inflation naturally saw their currencies go down in nominal terms against the yen, because inflation means you get less for your money, or that you need more money to get the same of what you used to be able to get. Compound those inflation differentials year after year, and it's clear there was nothing unsustainable about the yen's nominal strengthening over time. The historical norm was for it to strengthen because of those dynamics.

Alas, in the current medium term we are living in, Abe etc saw the nominally "strong" yen as a problem. What the real problem was is that Japan's economy needed to go to a more advanced level, making better use of its workforce. But facilitating that sort of adjustment in the economy was beyond them, and their alternative was to just try to keep Japan-based jobs globally competitive by knocking the currency lower with Abenomics arrows. They have the goal completely wrong IMO, but they were competent enough to achieve that.

kickboard,

Ha ha, that's funny. Same could be said of many posters here

Indeed, but I pointed out the obvious in GLD's case, as it is tiresome to constantly encounter comments dismissing Kuroda etc as incompetents who should be fired, while espousing wacky theories about the world we live in that are irreconcilable with reality. It's not that I think Kuroda and Abe are wonderful, but they have more of a clue than GLD cares to give them credit for.

I view the Japanese as an honorable society unlike that of the USA that continues to make a victim of truth and it's justice system is truly a pretentious endeavor.Naturally Japan is not without it's problems but at least they can be resolved unlike those of the USA.The American leadership have placed self-interests as their primary objective and as a result have ruined their country and that in turn will, in the near future, trigger the World's monetary collapse !!

"Japan’s debt-to-GDP ratio, at roughly 230%"

Whose fault is this?

Whose fault is this?

It's the fault of insane cognitive dissonance. The simultaneous belief that low taxes on high income individuals and corporations are good for an economy (so they can stick their savings away in the bank), while high levels of government debt are bad for an economy. Reality is that private savings and government debt levels are the two sides of the same balance sheet. Can't have one without the other.

Future generations will laugh hysterically at the stupidity. Or if things get really screwed up by this generation of idiots, cry in their beers.

Comparing Japan to Greece economy is like comparing potato to golden egg if Japan is so low Abe would be gone from its post long time ego.

Instead, they see Greece’s present predicament as a warning against being too tight with the public purse strings and the follies of mindless austerity.

"Mindless austerity" is to cut spending without reforming government welfare programs, economic policy and taxation. These adjustments should be made based on current economic circumstances and adjusted accordingly.

“Greece raised taxes and cut spending but as a result has seen tax revenues fall for three straight years,” Japan’s economy minister Akira Amari said last week.

So the answer is continuous deficit spending? Japan is suffering from an aging population, shrinking domestic market, declining relative competitiveness, high tax rates, and growth rates that have been stagnant for decades. Add to that one of the highest national debts in world history and people are arguing for more of the same?

Now the Japanese do have some advantages that the Greeks do not have such as a high savings rate, high tax compliance, and a strong work ethic. But the Japanese are already leaning on them to endure their decades long economic malaise. At some point they will have to grow their economy or they will find themselves in their own solvency crisis.