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Around 90% of Japan's debt is held on-shore, either by pension funds or by the mega-banks. The interest rates on JTBs (Japanese government treasury bills) have

by rluhar 13y ago

Around 90% of Japan's debt is held on-shore, either by pension funds or by the mega-banks. The interest rates on JTBs (Japanese government treasury bills) have already spiked, albeit from a very low base. This has resulted in falling JGB prices (there is an inverse correlation between interest rates and bond prices). If the appetite for JGBs in Japan starts going down, the government will have to start looking abroad to cut their deficit. Things could get very interesting. I also wonder how Japanese pensioners view the "inflation target". If you are setting on a pile of cash, zero inflation or a mild deflation is not a bad thing. Your pension is not going to increase, so having each yen go a bit further than last month is not necessarily bad. Inflation will encourage consumption in the short term of course, but it may also result in economic hardship when pensioners find that their yen does not stretch as far as it used to. I think the Abe government is walking a fiscal tightrope. If their policies result in hyper-inflation, we will have trouble. If they do nothing at all, the poor demographics and stagnant economy will lead to trouble. I wonder if they could have used their election mandate to focuse on improving productivity, making it easier for women to hold full time jobs and for immigrants to live and work in Japan. I guess printing money is much easier politically! (Disclaimer - I too live in Japan). Edit - Corrected JTBs to JGBs thank you J_

J_ 13y ago
A lot of hedge funds (e.g. Kyle Bass and George Soros) think that we've reached a tipping point in Japan. Their government already spends 1/4 of all revenue on debt service because their debt is monstrously huge. If inflation happens, their debt bomb is going to go off because no one will want their money in low yield bonds in an inflationary environment. If JGBs (I've never heard them referred to by the JTB abbreviation before) move 200 basis points (which is what the government is targeting for inflation), the government's debt service will exceed revenues. Yields spiked 25 points in 3 days last week. A debt crisis looks imminent. Kyle Bass is asserting that they're going to have to default and the value of the yen is going to plummet to something like 200 to the dollar. This is just the beginning of the end. Get your money out of yen.
- rluhar 13y ago
  I have heard and read similar analysis. I reckon the Government could force the mega-banks and pension funds to just take the pain and keep hoarding JGBs. Not having to deal with external yield hungry investors has it's advantages. I can imagine the government making an appeal to patriotism, which may be more successful in Japan than in other places.
- hudibras 13y ago
  "If inflation happens...": that's a huge caveat you've got buried there. Let me guess: You think I should buy either gold or bitcoins, right?
  - J_ 13y ago
    I shouldn't even say if because it's happening now. The yen's fallen more than 20% in the past 6 months. Their government is printing 7 TRILLION yen every month for two years to force inflation. That's almost as much as the Fed is doing in an economy that's a third our size. I'd put my money in US stocks. I tend to think Buffet's right about gold being a lousy investment and really don't have any idea how bitcoins will do.
    - hudibras 13y ago
      The yen falling in value is a good thing. The targeted inflation rate is 2%, not exactly Weimar Germany. I guess we're going to have to agree to disagree.
      - J_ 13y ago
        It's not if you're Japanese and it causes a bond crisis. Their debt equals over 20 times their government's revenues. Even 2% inflation will cause yields to move and debt service to exceed government revenues. They will be forced to default or inflate. Either will cause the value of the yen to nosedive.
        daliusd 13y ago
kaonashi 13y ago
Why would the entity that has the Yen printing press need to look overseas for Yen?
- rluhar 13y ago
  Excellent question - they wouldn't. But firing up the printing presses would cause inflation. This is bad news when Japan is not self-sufficient for energy or for some food production.
  - kaonashi 13y ago
    Right, but if you're printing and putting people to work with it, inflation is much less of an issue (more money chasing after more goods & services). It's only when you're at your production capacity and still keep printing that you start seeing more money chasing after the same amount of goods. Japan's unemployment is ~4%, low compared to other nations, but still high historically. Their labor force participation rate is about 8% below the U.S., though. There's lots of room to put people to work.

by rluhar 13y ago

J_ 13y ago

A lot of hedge funds (e.g. Kyle Bass and George Soros) think that we've reached a tipping point in Japan. Their government already spends 1/4 of all revenue on debt service because their debt is monstrously huge. If inflation happens, their debt bomb is going to go off because no one will want their money in low yield bonds in an inflationary environment. If JGBs (I've never heard them referred to by the JTB abbreviation before) move 200 basis points (which is what the government is targeting for inflation), the government's debt service will exceed revenues. Yields spiked 25 points in 3 days last week. A debt crisis looks imminent. Kyle Bass is asserting that they're going to have to default and the value of the yen is going to plummet to something like 200 to the dollar. This is just the beginning of the end. Get your money out of yen.

rluhar 13y ago
I have heard and read similar analysis. I reckon the Government could force the mega-banks and pension funds to just take the pain and keep hoarding JGBs. Not having to deal with external yield hungry investors has it's advantages. I can imagine the government making an appeal to patriotism, which may be more successful in Japan than in other places.
hudibras 13y ago
"If inflation happens...": that's a huge caveat you've got buried there. Let me guess: You think I should buy either gold or bitcoins, right?
- J_ 13y ago
  I shouldn't even say if because it's happening now. The yen's fallen more than 20% in the past 6 months. Their government is printing 7 TRILLION yen every month for two years to force inflation. That's almost as much as the Fed is doing in an economy that's a third our size. I'd put my money in US stocks. I tend to think Buffet's right about gold being a lousy investment and really don't have any idea how bitcoins will do.
  - hudibras 13y ago
    The yen falling in value is a good thing. The targeted inflation rate is 2%, not exactly Weimar Germany. I guess we're going to have to agree to disagree.
    - J_ 13y ago
      It's not if you're Japanese and it causes a bond crisis. Their debt equals over 20 times their government's revenues. Even 2% inflation will cause yields to move and debt service to exceed government revenues. They will be forced to default or inflate. Either will cause the value of the yen to nosedive.
      - daliusd 13y ago

kaonashi 13y ago

Why would the entity that has the Yen printing press need to look overseas for Yen?

rluhar 13y ago
Excellent question - they wouldn't. But firing up the printing presses would cause inflation. This is bad news when Japan is not self-sufficient for energy or for some food production.
- kaonashi 13y ago
  Right, but if you're printing and putting people to work with it, inflation is much less of an issue (more money chasing after more goods & services). It's only when you're at your production capacity and still keep printing that you start seeing more money chasing after the same amount of goods. Japan's unemployment is ~4%, low compared to other nations, but still high historically. Their labor force participation rate is about 8% below the U.S., though. There's lots of room to put people to work.