The comparison with Italy isn't particularly appropriate, IMHO. The ccy sovereignty makes all the difference.
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Japan Spirals into Bankruptcy?
- Thread starter observer67
- Start date
Quote from Martinghoul:
The comparison with Italy isn't particularly appropriate, IMHO. The ccy sovereignty makes all the difference.
Martinghoul - can you provide some more detail on this viewpoint?
I understand that Japan can print JPY to pay off its debt in nominal terms and that Italy cannot.
However I think the comparison with Italy is valid in terms of how quickly things can unravel, especially given that Japan's debt to GDP is higher.
Well, firstly, as I've mentioning before, it's not 100% clear to me that Japan's debt/GDP is larger, given the various cross-governmental holdings of debt. Secondly, for the speed of the unravelling what matters the most is the extrenally held govt debt and, as we all know, Japan isn't like Italy in that regard at all. Finally, yes, I think the currency makes all the difference in the world.Quote from m22au:
Martinghoul - can you provide some more detail on this viewpoint?
I understand that Japan can print JPY to pay off its debt in nominal terms and that Italy cannot.
However I think the comparison with Italy is valid in terms of how quickly things can unravel, especially given that Japan's debt to GDP is higher.
Quote from Martinghoul:
Well, firstly, as I've mentioning before, it's not 100% clear to me that Japan's debt/GDP is larger, given the various cross-governmental holdings of debt. Secondly, for the speed of the unravelling what matters the most is the extrenally held govt debt and, as we all know, Japan isn't like Italy in that regard at all. Finally, yes, I think the currency makes all the difference in the world.
Agree that Japan is not comparable to Italy. Additional points:-
1) 90%+ of government debt financed by Japanese
2) Japan current account surplus -> ability to raise foreign currency
I am also not expecting a Japan collapse (infact I am quite bullish on Japanese stocks long term) but a move from current 1% 10y yields to 1.50% would still be a great trading opportunity and that is not out of the question IMHO.
The biggest risk to Japan is if yields kept rising above 2% and got to 3% say, and then the bond selloff becoming self fulfilling...bond losses for domestics changing perceptions of their relative safety. In other words, the rising interest payments reducing the goverment's ability to refinance, in turn leading to rising costs of borrowing, and so on...
Soros would call this phenomenon "reflexivity".
Yep, #1 is the what I was referring to when I mentioned externally (typo in the previous post) held debt. One of the issues that a low level of externally held debt prevents is the ratings downgrades-driven negative feedback loop that we have observed in the European sovereigns, like Italy.Quote from benwm:
Agree that Japan is not comparable to Italy. Additional points:-
1) 90%+ of government debt financed by Japanese
2) Japan current account surplus -> ability to raise foreign currency
I am also not expecting a Japan collapse (infact I am quite bullish on Japanese stocks long term) but a move from current 1% 10y yields to 1.50% would still be a great trading opportunity and that is not out of the question IMHO.
The biggest risk to Japan is if yields kept rising above 2% and got to 3% say, and then the bond selloff becoming self fulfilling...bond losses for domestics changing perceptions of their relative safety. In other words, the rising interest payments reducing the goverment's ability to refinance, in turn leading to rising costs of borrowing, and so on...
Soros would call this phenomenon "reflexivity".
In the meantime, poor old Japan experiences problems like this:
http://www.telegraph.co.uk/motoring...Ferraris-worlds-most-expensive-car-crash.html
http://www.telegraph.co.uk/motoring...Ferraris-worlds-most-expensive-car-crash.html
"Bank of Japan Sprays World With Surprising ¥10 Trillion Gift In Valentine's Day Liquidity"
http://www.zerohedge.com/news/bank-...¥10-trillion-valentines-day-liquidity-present
"The BOJ policy board also revised the wording of its "understanding of price stability," saying now it has set a "price stability goal" of 2% or lower in the core consumer price index in the medium- to long-term and a goal of 1% growth for the time being. For calendar year 2011, Japan's core consumer price indexâexcluding food pricesâwas negative 0.3%."
At the time of writing USDJPY at 77.97.
Bloomberg
http://www.bloomberg.com/apps/quote?ticker=GJGBBNCH:IND
still has the 10 year JGB yield at 0.98%, which is from 13 February.
This may or may not be the start of the Keynesian endgame for Japan. Even if it isn't I think today's announcement is another interesting episode of the money printing drama.
http://www.zerohedge.com/news/bank-...¥10-trillion-valentines-day-liquidity-present
"The BOJ policy board also revised the wording of its "understanding of price stability," saying now it has set a "price stability goal" of 2% or lower in the core consumer price index in the medium- to long-term and a goal of 1% growth for the time being. For calendar year 2011, Japan's core consumer price indexâexcluding food pricesâwas negative 0.3%."
At the time of writing USDJPY at 77.97.
Bloomberg
http://www.bloomberg.com/apps/quote?ticker=GJGBBNCH:IND
still has the 10 year JGB yield at 0.98%, which is from 13 February.
This may or may not be the start of the Keynesian endgame for Japan. Even if it isn't I think today's announcement is another interesting episode of the money printing drama.
10y JGB (JB320, i.e. 1% coupon 20Dec2021 maturity) yield is currently 96.1bps.
And, btw, speaking of JGBs, what a spectacular (suspected) fat finger that was in futures last night!
And, btw, speaking of JGBs, what a spectacular (suspected) fat finger that was in futures last night!
Quote from Fractals 'R Us:
There is no proof that Keynes was ever right. Politicians love his ideas, of course. It allows a lot of money to flow through their grubby hands to their grubby friends... so in their eyes Keynes is King but basically... no real proof for it at all....
Well to be fair to Keynes it seems most countries can't muster the fiscal discipline later on to really apply Keynes in the way he intended. It's easy to open the spigot, hard to close it.
Keynes advocated either raising taxes or cutting government expenditures during boom times as well as deficit spending during recessions. We are great at the second part of his cure, but once we start feeling better we are awful at completing the full course of the treatment. It's like the patient with a bacterial infection that is supposed to take antibiotics for two weeks but stops after three days because they feel much better.
The other thing to keep in mind with regard to Keynes is that his ideas were developed during the time that currencies were backed by hard assets. I would think a world of fiat currencies might have altered his thinking.
Quote from member:
Deflation will benefit western economies. There would be a catalyst to create jobs by repatriating manufacturing industries stolen by Asia and oil exporting countries would suffer also due to declining commodities prices.
I have a hard time agreeing with this. For the U.S. in particular, deflation would mean paying off debt with dollars having greater purchasing power than the dollars borrowed, in effect the equivalent of raising interest rates retroactively! For a country whose debt is held externally to a significant extent this could be disastrous.
A little deflation in Japan, by the way, is not nearly so harmful. as their debt is largely held internally.