Contagion Coming to Tokyo?

I don’t think so, at least not yet…

The FT seems to agree, and almost manage to summarise:

But talk of a massive JGB bubble – let alone default – is farfetched. Certainly, Japan is not in the rudest of fiscal health. The government has spent to keep its economy going. That, combined with falling tax revenues, has pushed the country’s gross debt towards 200 per cent of gross domestic product. With an ageing population, this alarming figure could get worse. So the 10-year JGB yield, at about 1.3 per cent, looks low. What do the markets think they know?

One should be wary about explaining away such aberrations. Yet by several criteria, Japan is different. First, gross debt levels are misleading. Japan’s debt, after netting off the state’s own holdings, is less than 100 per cent of GDP. Second, the cost of servicing its debt is low, at roughly 1.3 per cent of GDP. That compares with 1.8 per cent in the US, 2.3 per cent in the UK and 5.3 per cent in Italy. Third, Japan has fiscal wiggle room: sales tax is just 5 per cent. Fourth, 95 per cent of Japan’s debt is domestically owned. Fickle foreigners have almost no sway. Indeed, Japan’s problem is still an excess of savings. Banks are awash with deposits that they need to place somewhere. For some time yet, the government will not find it hard to secure buyers for JGBs. Japan’s debt problem will be worked out in the family.

[Emphasis mine.]

No denying that there are a lot of longer term, structural, problems, but imminent collapse of the JGB just doesn’t seem likely. If japan had current account deficit, high personal debt, high taxes, and was engaged in protracted overseas military campaigns, then i’d be worried… now.

Wise words...

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