politics

Japan's debt mountain: How is it sustainable?

30 Comments
By Etienne BALMER

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In reality, the Japanese public's savings are going from the proverbial left hand pocket to right hand pocket.

Also if Japan ever got stuck in a hard place, it could, but wont, start calling in it's foreign paper to cover things here, which it wont due until there is a dire emergency, because it would have an adverse effect on world markets too, effectively cutting off their nose to save the face!

7 ( +9 / -2 )

And so there you have !

Simply write it off ! There all fixed.

And forgive everyone's debt .........not likely

9 ( +9 / -0 )

Another thing that keeps market confidence high: Japan is the world's biggest creditor, holding more than $3 trillion in net assets in foreign currency reserves and direct investment abroad.

The more important question is how the yen can stay strong, and the above information is the key. Japan is solvent.

8 ( +9 / -1 )

This debt is a firecracker, will do one of two things explode or implode, only time will tell.

Eventually , even though this ""debt"", more like Monopoly Money, is owed mostly in Japan, if interest rates go up this amount will skyrocket......who knows what will happen BUT it is unlikely to be good!!

7 ( +12 / -5 )

I wonder how much of that went to Dentsu

6 ( +6 / -0 )

Another thing that keeps market confidence high: Japan is the world's biggest creditor, holding more than $3 trillion in net assets in foreign currency reserves and direct investment abroad.

This is not good. You hold most of your assets overseas, while you have absolutely no leverage on the national entity that actually controls the assets.

If the US tomorrow decides to confiscate all Japanese assets, then what will Japan government do? Military action against the US? This is precisely a reason why China engaged in the debt trap diplomacy because the CCP uses the debts to force certain nations ceding critical structures for Chinese military. Through these military bases, China can safely protect its assets overseas in the similar way that EU and US do. If a nation confiscates Chinese assets (like Egypt did with the UK), the CCP can retaliate swiftly. Except China is more malevolent.

Not to mention Japan's most performing and high-growth assets are in CHINA. The CCP is the most unpredictable and malevolent regime. It can easily take away Japanese assets in China if Shinzo Abe makes a mistake that insults the spirits of a billion of people. This is why no LDP cronies dares to criticize the CCP via action as Trump does.

In fact, 90 percent of the debt is held by Japanese investors.

More like the Bank of Japan. It created a self-induced deflationary spiral that hurts the commoners and benefits the LDP cronies with their foreign masters. However, I perfectly understand why they do deflation because hyperinflation is a much worse scenario. It happened during the 1980s briefly before the bubble crash.

The growing mountain of debt means that, even with ultra-low interest rates, the amount Japan's government pays for repayments is its second-largest budget line.

Japan's debt continues as long as the second Sakoku is implemented. No Japanese goes outside of Japan and does economic activities with the rest of the world. Japan completely isolates itself from the international economy, and prohibits the foreign investors to buy its debts. Japan will never default in this case, while life quality will depreciate overtime.

One drastic step could be to write off the debt held by the BOJ 

LDP cronies used to think of doing this around 2000s. However, the US threatened them with force if they ever write off their own debts. American and European investors are massively investing into JGBs. With much hurdles from Abe administration, foreign investors still buy the debts more and more. Shinzo Abe accomplished the second opening of Japan through bowing down at Trump with a recent agriculture trade deal, while Robert Lighthizer became the second coming of Commodore Perry.

4 ( +11 / -7 )

How is it sustainable? That’s easy! Print more money and increase taxes!

There has been two sales tax increases in the last ten years. In both cases they were touted to be used to reduce the public debt, which never happened in both cases. All local councils have been given orders to clear all city tax debts regardless of what it takes to get the money. I have no doubt there will be more sales tax increases to come in the next decade.

6 ( +7 / -1 )

Japan lent fake printed money to other countries. BOJ buy foreign companies with fake printed money. why pay tax ?? just print!

-2 ( +3 / -5 )

But this does not take into account the moral dimension of economic mechanisms.

That's it. It's a "moral" issue to reduce the national debt, not an economic one. If the public wants to feel "morally" good about their public finances, then fine, triple the tax rates and slash spending to achieve extreme austerity. Hey, the 99%will quickly sink into poverty, but they will have a clear conscious.

Japan's debt is sustainable. It has proved that time and time again over 20 years now. Austerity policies, meanwhile, have failed time and time again. So, balance the budget at your peril.

-2 ( +6 / -8 )

"In fact, 90 percent of the debt is held by Japanese investors.

Another thing that keeps market confidence high: Japan is the world's biggest creditor, holding more than $3 trillion in net assets in foreign currency reserves and direct investment abroad."

There it is:

a) World's larges creditor/holder of assets

b) 90% of debt in held by Japanese themselves.

c) Foreign investors have no sway or say on what Japan does with its cash.

The Peeping (and a few other posters) has been posting this truth for donkeys.

Yet lots of JT "financial experts" keep on parroting the tiresome "but Japan has got no money" every time a new stimulus is announced.

Japan's problem: they've got far too much of it.

You'll grow very old before this state of affairs changes.

1 ( +10 / -9 )

"To finance this debt, the Japanese government issues bonds known as JGBs.

These are snapped up in enormous volumes by the BOJ, the country's central bank that is officially independent but in practice closely co-ordinates economic policy with the government."

In essence, one brach of the govt is printing money which the BOJ, another branch, uses to buy JGBs a/k/a IOUs issued by yet another branch of the same government. It's a Ponzi scheme. The reason that the BOJ buys this worthless paper is because there is no international market for these bonds - the premium investors demand for their risk is more than the govt could ever pay, when it pays almost nothing to domestic purchasers.

0 ( +3 / -3 )

"American and European investors are massively investing into JGBs."

Yeah, they hold a massive 10% of Japan's debt!

Is it so hard to read the article prior to posting nonsense?

The sky is falling; Japan is doomed.

0 ( +5 / -5 )

calling in it's foreign paper

No. That's what you don't want to do as you'd have to repay in the currency that you borrowed, which would result in a plunge in your own currency. Basically, Japan is borrowing from itself. The borrowers are mostly elderly. Look at it as a pension scheme.

4 ( +5 / -1 )

This debt is a firecracker, will do one of two things explode or implode, only time will tell.

id be worried more about the US, in the last 12 yrs there have been two market crashes, and they just keep getting bigger

5 ( +5 / -0 )

Life is short, at the end of the day what matters is the standard of living and happiness and not whether the country is the biggest creditor.

2 ( +2 / -0 )

Japan's debt mountain: How is it sustainable?

The problem will get much worse because all of the factors point in that direction. Shrinking and aging population, slow growth - there is no way out other than default at some point down the road. It's inevitable. The pain will be excruciating for everyone. People always living to today.

4 ( +5 / -1 )

Yes it is of course a great big ponzi scheme, so is the pension system , in fact all of these govts are one big facade, nothing of substance to back it up. Show me the gold ! There is none.

Japan atleast is not using Euro s haha what a joke that rubbish is.

Here above is why Japanese yen is a safe haven in times of trouble and strife, except when the real trouble comes calling, which it wont.

2 ( +3 / -1 )

"Japanese seniors lack financial literacy".

Or maybe they don't want to fall prey to the stock market boom and bust cycles that wipe out small investors and their pensions but benefit the whales in the mid-term.

5 ( +5 / -0 )

With a grammar mistake in the second paragraph, I stopped reading. If the writer cannot even write, can I trust anything he says?

3..2..1..

-1 ( +0 / -1 )

Quote "How did we get here?"

It's called the Plaza Accord. The Lost decades.

Japan was 80% of America's GDP in 1985 before we sign it, Japan focused on its economy, would have surpassed the Americans by 1996.

Uncle Sam said, We can't have that. We can't let the Japanese have a better economy then us. Enter the Plaza Accord which we signed in 1985. That was the end of Japan impressive rise. Trillions lost since we signed it. Decade after decade, prime Minister after prime Minister trying to keep Japan afloat from sinking.

4 ( +5 / -1 )

So it's already an accounting trick not based on economic value but to hide economic contraction. When enough seniors pass on they'll have to have foreign investment but won't be able to have high interest so the whole Ponzi scheme will collapse

Since writing it all off now would only affect Japanese investors it's best to go ahead and do it now

-1 ( +0 / -1 )

"A large portion of wealth is held by seniors who lack financial literacy and prioritise stability rather than return," said Shigeto Nagai, from Oxford Economics.

Money as a non-productive asset?

Maybe when I am 70 or 80 years old, ok...

0 ( +0 / -0 )

"The ultra-low rate conditions created by very much accommodative monetary policy by BOJ can be one of the reasons" that Japan's mountain is less problematic than for other high-debt countries around the world, said Takashi Miwa, an economist at Nomura bank.

The Japan Model, the envy of the world.

Like the Avigan that Abe was touting to other leaders, I am sure he is telling them of the wondetful Japan model of borrowing and spending heavily like a drunk as if there is no tomorrow.

-1 ( +0 / -1 )

"90 percent of the debt is held by Japanese investors" in other words, a closed market.

Resource misallocation occurs when major asset classes (pensions etc) are forced to "invest" in government debt resulting in opportunity costs, uncompetitiveness, and economic stagnation.

0 ( +0 / -0 )

@Peeping: Another thing that keeps market confidence high: Japan is the world's biggest creditor, holding more than $3 trillion in net assets in foreign currency reserves and direct investment abroad."

So what happens to Japan if the US and/or Europe defaults on it's debts to foreign creditors?

-1 ( +0 / -1 )

One good thing about countries is they can declare bankruptcy without having property seized. Why can't people have that right too?

0 ( +1 / -1 )

One good thing about countries is they can declare bankruptcy without having property seized. Why can't people have that right too?

The exact opposite is actually true. Countries can never declare bankruptcy to stave off creditors in the same way that ordinary people can. Property seizures rarely happen because countries with bonds denominated in their own currency can just print more money instead of defaulting. The terms of the bond may also preclude this.

There are a number of cases, such as Argentina, where bonds were denominated in US dollars and the country defaulted in 2002. So called 'vulture funds' bought up the debt for pennies on the dollar and they've been trying to seize Argentine government ships and other assets around the globe. There is nothing Argentina can do to put an end to this other than paying it off in full or negotiating some settlement.

https://www.reuters.com/article/argentina-debt-ship/argentine-naval-ship-detained-in-ghana-by-bondholders-idUSL1E8L34F620121003

1 ( +1 / -0 )

More interest to pay from the government budge in future.

Imagine what Japanese government can do without the interest burden.

0 ( +0 / -0 )

I used to fret over the mountains of Japanese debt back in the 80's then the 90's, then again the doomsday of Y2K and the mountains of debt, then again in 2010. I'm tired of all the fretting.

Debt and economics taught from 100 year-old theories seem to be only good for news writers who want to scare you into reading the same old recycled articles.

3 ( +3 / -0 )

@expat

 one brach of the govt is printing money which the BOJ, another branch, uses to buy JGBs a/k/a IOUs issued by yet another branch of the same government. It's a Ponzi scheme. 

Clearly, you don't know what a Ponzi scheme is. How many Ponzi-scheme operators have a monopoly to issue the global safe-haven currency? How many are the world's biggest creditor?

So I need to create my own currency.

Good luck, but as you aren't the world's third biggest economy and the world's biggest creditor, I predict you'll find yourself in big trouble.

So what happens to Japan if the US and/or Europe defaults on it's debts to foreign creditors?

japan and the US would have to run out of yen or dollars, respectively, for a default to happen. Can you explain how that would occur? Eurozone is more vulnerable, as we saw with the Eurozone crisis, as Euro members can't freely control their currency issuing.

0 ( +1 / -1 )

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