World's Largest Pension Fund Needs to Sell Japanese Bonds; Japan's Demographic Time Bomb Officially Goes Off
Friday, February 25, 2011
"There is not going to be a huge exodus of Japanese bonds anytime soon. However, the world's largest fund has gone from being a buyer of bonds to a seller of bonds. The amount is not trivial.
82.4 trillion yen in domestic bonds is about 1 trillion in US dollars. That is a lot of pent-up supply, especially when the government is running an annual deficit of of about $240 billion with no external buyers at all.
Those factors put huge long-term upward pressures on interest rates."
"Japan is counting on increased sales to China when China is clearly overheating and will have to cut back. How do you think that fantasy is going to work out?
So, it's back to tax hikes. To do it all with tax hikes, Japan would need to hike the VAT by 200%, from 5% to 15%. Is that going to fly with the voters?
Nonetheless, let's assume Japan does hike taxes. Those tax hikes would strengthen the yen, which in turn would hurt Japan's export growth and corporate profits.
Also, there is this very alarming section:
Will growth be sufficient to make a long-term dent in Japan's debt? I scoff at the notion. Moreover, rising energy prices will take a big bite of of Japan's trade surplus.
By the way, in case you missed it, Japan's trade surplus went negative last month. Supposedly it's a one-time thing.
And as Edward Hugh recently wrote:
What happens if Japan runs a trade deficit
Tuesday, January 11, 2011
Once Japan has a trade deficit it will all be over pretty quickly, since then of course they will have to attract funds to finance the deficit, and this is where things will start to get pretty tricky.