Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

Japan’s Public Debt Sustainability: Will Legacy Costs Bankrupt Japan?

Posted by hkarner - 20. Juli 2009

  • The sustainability of Japan’s public finances has come under scrutiny in the wake of Japan’s 15.4 trillion yen fiscal stimulus package announced in April 2009 which will send public debt soaring to 200% of GDP by 2010. Japan’s heavy debt load led to the loss of its last ‚AAA‘ sovereign rating in May 2009. 
  • Locals have held most Japanese government bonds but a declining saving rate coupled with declining home bias could spell disaster for Japanese sovereign debt. Low interest rates keep debt costs down, but investors may seek higher yield elsewhere.

Eine Antwort to “Japan’s Public Debt Sustainability: Will Legacy Costs Bankrupt Japan?”

  1. l4z410 said

    You may be right, but the foreign exchange risk for investor is not to underestimate. For example big life insurance company incl. the post insurance face this challenge. A proper hedging scheme could be an answer to this risk exposure. This does not mean to hedge the curve differentials away (otherwise the investor would be back to Japanese yen interest rates). Nevertheless the external financing proportion is not that small and has grown over the last 3 years. The Ministry of Finance is actively promoting the selling of Japanese Government bonds to foreign investors. Pls have also a look at my homepage on Japanese bonds:

    http://www.japanesebonds.de (This is a non-profit homepage. I try to give some structural background on the Japanese markets, because I live in Japan and have some touch to the markets).

    It seems to me more the problem that Japan is doing an internal financing of a low productive country. That means it can not participate on higher growth in other countries and it is also blocked from hiring productive foreign people (self-imposed and perhaps reasonable for Japanese culture).

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