Japan's fiscal death is a warning to the West

[FarCenter]

Key indicators are deteriorating on almost every front, raising concerns that the world's third largest economy is running aground after two "Lost Decades".

Japan's debt has jumped by 61 percentage points of GDP since 2008, compared to eight points for the AAA bloc. Public debt is expected to reach 239pc of GDP this year, uncharted levels for a major economy in peace-time. `Net debt' –subtracting Japan's vast holdings of foreign bonds – is nearer 137pc but this is rising at an even steeper trajectory.

"Japan's addiction to public sector spending is way beyond the boundaries or remedial `austerity'," said Dylan Grice from Societe Generale. "Political pressure on the Bank of Japan to crank the printing presses into top gear will become irresistible. We see no alternative."


http://www.telegraph.co.uk/finance/financialcrisis/9283417/Japans-fiscal-death-is-a-warning-to-the-West.html

Hyperinflation is the only way out for Japan.

[Zalatix]

1. Say hello to the rebirth of their export-based economy if that happens.

[pa28]

2. Lately, I've noticed quite a bit of hand wringing in the financial media over Japanese debt.

It's kind of ironic because they are really complaining a free market function. Japanese bonds issues are just another product available on the market. The price goes up or down based on extremely informed opinions and well developed models.

When yields jump we'll know their debt ratio is out of balance but where are the bond vigilantes now?

[taught_me_patience]

3. The Bank of Japan is heavily involved

in maniplating the price of the bonds. It does prove that a central bank can hold down rates almost indefinately, though.

[pa28]

4. True. As you alluded to we have the same principle working in our economy as well.

Here is the difference as I see it. Japan carries a far higher debt ratio than we do and yet they've maintained low rates. The OP'd link suggests Japanese borrowing is reaching a limit but it's just speculation. Rates are still low and that fact stands.

If Japan becomes a sick patient and we see rate spikes and massive inflation we need to take notice and realize we'll have the same thing coming in our economy in five or ten years. Evans-Pritchard seems to be making the case that Japanese debt is reason to follow an austerity agenda in the western economies right now. That's flawed reasoning.

[shimonitanegi]

5. 95% of Japan's debt is owned by Japanese.

Japanese currency 'yen' is still strong and the most important thing is that Japan is world's largest net creditor for 21 years in a row.

http://www.businessweek.com/news/2012-05-21/japan-2011-overseas-net-assets-were-little-changed-as-yen-climbs

[bhikkhu]

6. A stable population and a stable economy signal disaster

...when you are an economist addicted to perpetual growth.

If you consider that there might be limits to growth, or that there should be limits to growth, Japan then becomes an admirable model. Hopefully intelligent hands are steering things, as they have done so well in the past.

[Art_from_Ark]

7. To paraphrase Mark Twain,

"The news of Japan's fiscal death is greatly exaggerated"

95% of Japan's debt is held by the Japanese themselves. Japan is a nation of savers, and the Japanese don't seem to have a problem with investing in their own country's bonds, despite the low returns, because it is for the public benefit. So Japan doesn't have to go begging to other countries to finance its debt. What's more, Japan holds more in bonds from other countries than other countries hold in Japanese bonds. So the situation is nowhere near as bleak as is painted in this Telegraph piece.

The thing that is really hurting Japan right now, besides dealing with last year's disasters, is the high exchange rate. In my opinion, no examination of the Japanese economy is credible if it doesn't include information on how the excessively strong yen has hurt Japan's export industries. Get the yen back to the 100/dollar level and Japan will be doing much better.

[madrchsod]

8. japan does`t have any electricity to power growth

the japanese will be moving manufacturing to the usa because it will be cheaper in the future to build things here to export. they`ll also move to other countries for the same reasons. unless japan can restore enough power in the future to run their factories they will be in big trouble.

[Art_from_Ark]

9. Japan has been exporting manufacturing jobs to the US since the '80s

So that's nothing new. Japan has also been exporting manufacturing jobs to other countries because it has been getting hammered by the exchange rate, with the yen being valued excessively high versus the dollar.

However, Japan is a country that has had more than its share of adversity and is pretty good at "thinking outside the box" to solve its problems. Instead of falling into self-pity because of the nuclear problem, there is a greater push to develop alternative energies, promote energy conservation, and encourage owners of homes and buildings to install solar collectors and panels.

On edit: Here is a link to Tokyo Electric Power Company's (TEPCO's) web site which provides constantly updated information about supply versus demand. Right now, in the middle of peak demand, demand is 85% of capacity in TEPCO's service area, which TEPCO calls "stable".

http://www.tepco.co.jp/forecast/index-j.html