Japanese fiscal crisis

It is Japan we should be worrying about, not America

“The IMF expects Japan’s gross public debt to reach 218pc of gross domestic product (GDP) this year, 227pc next year, and 246pc by 2014…

The savings rate has crashed from 15pc in 1990 to near 2pc today, half America’s rate. Japan’s $1.5 trillion state pension fund (the world’s biggest) has become a net seller of government bonds this year, as it must to meet pay-out obligations. The demographic crunch has hit. The workforce been contracting since 2005.

Japan Post Bank is balking at further additions to its $1.7 trillion holdings of state debt. The pillars of the government debt market are crumbling. Little wonder that the Ministry of Finance has begun advertising bonds in Tokyo taxis, featuring Koyuki from The Last Samurai. If Japan’s bond rates rise to global levels of 3pc to 4pc, interest costs will shatter state finances.

Simon Johnson, former chief economist of the International Monetary Fund (IMF), told the US Congress last week that the debt path was out of control and raised “a real risk that Japan could end up in a major default”.

It is somewhat surprising that Japan’s postal system authorities would resist MoF requests to buy more bonds.  If Japan’s pension funds are selling domestic govt bonds, can Treasuries be far behind? I think not. Dis-saving may be under way.

Japanese Finance Minister Hirohisa Fujii said :

“that Japan Post, the national mail carrier that also has banking and insurance units, should lower its weighting in Japanese government bonds and lend funds to small- and medium-sized enterprises, but that such a shift would take time. Fujii also said the government shouldn’t tap Japan Post as if it were a piggybank or a second budget.  Japan Post, which controls around 330 trillion yen in assets, has said a significant portion of its investments are in government bonds. The Democrats’ plan to cancel the privatisation of Japan Post has raised concerns the government could reach a tacit agreement with the mail carrier to buy more bonds.”

Oct 20, 2009 Japan’s Bonds Drop a 4th Day After 20-Year Auction Demand Cools

“Japan Post Holdings Co. may choose to shift away from bonds. The government lender should diversify its investments away from Japanese government bonds and Treasuries, Financial Services Minister Shizuka Kamei was quoted as saying in an interview published today by the Wall Street Journal.”

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