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Kishida negative about gov't bonds to finance defense spending hike

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@Seven

ubari, Hokkaido and Akaike, Fukuoka (and possibly Kyoto) for a few examples of insolvency/bankruptcy "situation" within govt.

Those are local governments, which don't have central banks hence cant print their own currencies to service their debts. Yes, they can default on their debt and declare bankruptcy, although the term insolvency is noirmally used for companies. The original poster referred to Japan, a central government (and currency issuer).

There have consistently been "no bids" for JGBs, which means no one is willing to take the risk of holding debt of an insolvent entity...

If that's such a serious matter, why aren't the markets panicking? Well, JGBs aren't much of a debt instrument, since the govt/boj can and does control the market. A major of role of sovereign bonds of all economies is to implement monetary policy, through "open market operations." Japan's bonds are used in this role as well as to absorb all that surplus yen cash floating around. They dont do much else, not the least provide holders with any kind of return. LOL.

As for "debt," Japan can pay that by printing yen, because nearly all its obligations are in yen. Oil and other energy are priced in US dollars, and Japan - the world's biggest creditor nation - is the world's largest or maybe one of the world's largest holders of US-denominated assets, so that certainly isn't a problem.

Doomsday arguments like yours have been around for a long time, at least 15 years now, and their predictions always end up not happening. The opposite usually happens, like interest rates going down when doomsayers said they would go up, aka "beyond wrong"

Investment strategies based on those beliefs are called "widowmaker." For good reason, shorting Japan in the belief the country is running on borrowed time has destroyed many investors' fortunes.

0 ( +0 / -0 )

@JeffLee

My apologies, I should have bolded See: Japanese Public Finance Fact Sheet

It is the 4th bullet point in the link, and on page 46 you can get some clarification on the insolvency issue that I thought you were confused about.

Your quote: "Insolvency is a situation at companies and for individuals, not govt, especially ones like Japan's."

See: Yubari, Hokkaido and Akaike, Fukuoka (and possibly Kyoto) for a few examples of insolvency/bankruptcy "situation" within govt.

Your quote: "And yet the BOJ is continuing its unlimited bond purchasing program, amid near zero interest rates and the lowest inflation of just about anyone. How can that be possible? Care to explain?"

I believe your question was asked, and then clearly addressed by fxgai above, but I will try to explain further...

There have consistently been "no bids" for JGBs, which means no one is willing to take the risk of holding debt of an insolvent entity (except the BOJ that can create money to buy the bonds) at a laughable rate of return, which is below the current inflation rate, priced in a deteriorating currency. It's just clearly not worth the risk, unless of course you're the one that can create money to buy the (junk) bonds.

To simplify, I'll take a corporation like AMC to use as an example. AMC recently offered Junk Bonds with a yield of a whopping 15%! AMC, currently insolvent, is considered a high risk "investment", therefore lenders command a higher rate of return to compensate their risk of holding the debt.

If there were no buyers of AMCs debt, they can just create money to buy their popcorn and overpriced movie tickets...oh wait, you can't just create money to buy your own junk! If you mismanage your company to the point of insolvency, you go bankrupt... same goes for government.

Or, I suppose, you can just keep creating money, backed by nothing, without inducing any new production of goods and services, inflate the price of the existing goods and services, while the purchasing power of the currency you are creating diminishes further by the day.

I don't have a degree in economics and, not to be rude but, this is basic, basic stuff here.

Anyways, hopefully that explains how The BOJ can create money to buy government debt that nobody else in the world will even touch!

0 ( +0 / -0 )

@Seven

Hopefully this will help your apparent confusion of the situation

That's pretty funny. I am anything but "confused." My question was a rhetorical one, and I was interested whether someone could offer a coherent explanation to back up a flawed narrative. You certainly didn't. I am confused by your link which contains a dozen or so other links related to the general budget.

Perhaps I can suggest you do a bit of research... 

I've done plenty of "research" thanks. My degree is in economics and for the last few decades have worked in the financial/business publication field.

"BOJ received no bids...!.

And yet the BOJ is continuing its unlimited bond purchasing program, amid near zero interest rates and the lowest inflation of just about anyone. How can that be possible? Care to explain?

0 ( +0 / -0 )

Mend fences with NK, China, and Russia, and do not take advice from profit-making nations from the arms sales, and perhaps it can even scale back on defense spending. Defense spending is the most profit-sustainable industry because of the continuous manufactured and nurtured threats, along with training drills that guarantee that there will always be demand for replacement weapons.

-1 ( +0 / -1 )

@JeffLee

https://www.mof.go.jp/english/policy/budget/budget/index.html

See: Japanese Public Finance Fact Sheet

Hopefully this will help your apparent confusion of the situation. Page 46 should help to clarify your statement regarding government insolvency.

Perhaps I can suggest you do a bit of research on "BOJ received no bids...or...no takers JGBs...or... emergency bond buying BOJ" to provide clarity to your question of "Why not issue bonds?"

Hopefully this will improve your (and others) understanding of the situation.

0 ( +1 / -1 )

Insolvency is a situation at companies and for individuals, not govt,

Government can certainly find themselves short of cash to pay its obligations…

Anyway, you believe that Japanese govt is struggling to meet its fiscal debt obligations?

Be serious. You didn’t miss the part about the BOJ buying up the debt willy nilly under the pretense of doing it for the purpose of price instability of 2% inflation (recently 75% above that target, and goalposts being shifted to money printing continuing until “wages rise” now, since printing for the pretense of inflation is no longer credible).

Should the central bank shift back to sound monetary policy, and end the monetary finance, the government will have more than a quadrillion yen of debt to service, they have annual revenues of about 65 trillion while spending is above 100 trillion.

A US treasury bond yields around 3.5% at the moment.

If a Japanese govt bond yielded just 2% (when the BOJ stops buying them who knows what the yield would be, but a sane investor would want to be compensated for inflation, which is well above the 2% target currently), then 2% of a quadrillion is a hefty chunk of tax revenues, just to keep rolling the debt over, let alone reduce the Everest of debt.

All that spending the government is doing isn’t paid for by Santa Claus or the MMT fairies.

Indeed if taxes were directed to debt servicing and paying it down, that would mean slashing spending by half or more, so the weak option of printing money and dealing with it through high inflation does look like the one the Japanese central planning committees will select.

But whatever the manifestation, the Japanese government finances are ruined. If one has a bad stomach and takes medicine to stop the vomiting, that doesn’t mean the problem is solved. It means the bad stuff will come out the back end instead.

High inflation due to incessant money printing / slashing spending - either way is a symptom of the same problem which is Japan’s out of control spending and debt. Delaying the maths doesn’t change the reality of the maths

1 ( +1 / -0 )

... [no bonds] he will seek public support for his plan to rely instead on tax increases

...

Kishida reiterated that the government will not raise income taxes to finance the planned hike in defense spending

I wonder if he is thinking sales tax but was too afraid to say it. He didn't say "no sales tax increases".

0 ( +0 / -0 )

@fxgai

 the government’s insolvency will be laid bare 

Insolvency is a situation at companies and for individuals, not govt, especially ones like Japan's. Anyway, you believe that Japanese govt is struggling to meet its fiscal debt obligations? That's interesting. Now prove it.

-3 ( +1 / -4 )

Issuing ling term bond,when Japan can be destroyed in 5 minutes,is not a good investment

^ How to say you know nothing about investing, without saying "I know nothing about investing".

1 ( +3 / -2 )

Issuing ling term bond,when Japan can be destroyed in 5 minutes,is not a good investment

-3 ( +1 / -4 )

We may be at a turning point in term of monetary policy and as a result fiscal policy as well. The BOJ and government may have started to understand that the inflation may be stickier that they thought and that time has come to slowly reverse policy. This could take place as soon as Kuroda is out next March.

Inflation in Japan is particularly painful because:

·      Pensions are ridiculously low so pensionner suffer a lot from inflation

·      To compensate for these low pensions, people, need to save a lot and their savings is destroyed by inflation.

·      Salary increases are well below inflation (especially for small and medium size companies).

If the BOJ accept higher yield the government will have to start to become more careful about public spending. This is why they do not want to issue more bonds.

1 ( +2 / -1 )

On the contrary, the BOJ can’t stop buying government debt because the government’s insolvency will be laid bare for even those with heads in the sand to see.

2 ( +3 / -1 )

Until, it couldn’t.

Yet it does. The only thing that would stop it would be a political decision, not an economic one.

The currency has as a result plunged deeply this year. 

More like, the US dollar and other countries' currencies rocketed because they had to hike their rates to tame much higher levels of inflation. As for Japan, the BOJ decided to stay the course...because it could.

-2 ( +1 / -3 )

Kishida will raise taxes and then resign…job done!

-2 ( +1 / -3 )

It just shows you that Japanese politicians do not care at all about public support. Abe's funeral and now this are probably the worst moves you could make if you care about public support. They think they are invincible.

-1 ( +3 / -4 )

Japan’s inflation is 75% above target. It used to have low inflation before the crazy money printing policies commenced.

This has nothing to do with money printing, inflation would be higher if the interest rates go up (As you know it is part of the inflation measurement). This inflation cycle is a direct result of all the failed corona policies around the world in 2020. It was predicted already then but leaders didn’t listen but went with the mass hysteria.

-2 ( +1 / -3 )

"To do this, stable funding sources are critical. In this respect, (issuing) government bonds is not an option …

Kishida reiterated that the government will not raise income taxes

Imposing higher corporate taxes is seen as a viable option.

Silly.

Corporate tax revenues are inherently unstable, so are unsuitable if indeed stable funding sources are sought.

Japan, with low inflation,

Japan’s inflation is 75% above target. It used to have low inflation before the crazy money printing policies commenced.

near-zero interests rates

Only because the BOJ is printing money to buy government debt willy nilly.

and a hard sovereign currency

The currency has as a result plunged deeply this year. It is 2022 now.

, does this because it can.

Until, it couldn’t.

Hiking taxes on consumers now would be destructive machoism.

The same can be said of printing money willy nilly. The inflation Japan is suffering is a tax on consumers. It’s been big news in 2022…

2 ( +5 / -3 )

His original promise of increasing the tax rate for the highest income earners was U-turned during his first month in office.

He should go back to his promise and follow through on it to help pay for this massive increase in defense spending.

Definitely not the middle or low income brackets. We're barely surviving.

5 ( +7 / -2 )

Why not issue bonds? The BOJ, a public sector institution, will buy half of them, with the proceeds returning to the MOF when they roll off the BOJ balance sheet. The rest will be bought by other institutions, including govt ones like the pension fund, and individuals who will receive a coupon of close to zero percent.

Japan, with low inflation, near-zero interests rates and a hard sovereign currency, does this because it can. Many others cannot. Hiking taxes on consumers now would be destructive machoism.

-2 ( +3 / -5 )

Raising taxes is a non-starter. If he does, he'll be gone fast. And pretty much nobody except the BOJ will buy bonds with zero interest these days. Not even Japanese banks or pension funds. He (or whoever is next) may as well print the money himself and hope for the best. Expect a weaker yen and higher inflation.

5 ( +7 / -2 )

Weasel words from Kishida again and again!

Of course, taxes will be raised to further the LDP’s agenda…

0 ( +7 / -7 )

Hope resigns asap!

Disgraceful useless PM!!

GET OUT !!

2 ( +11 / -9 )

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