Bond Investors Bet on Japan's Day of Reckoning [Very Scary!]

Wall St. Journal ^ | December 31st 2009

[Steelfish]

DECEMBER 31, 2009 Bond Investors Bet on Japan's Day of Reckoning

GREGORY ZUCKERMAN AND JOANNA SLATER

Some hedge funds are starting to wager on painful times ahead for Japan, the world's second-largest economy. These investors, including some who made successful bets against risky mortgages and financial companies in recent years, anticipate trouble for Japan's financial system. Their concern: Government borrowing continues to climb while demand for the nation's debt could taper off.

A collapse of the Japanese government-bond market "is going to happen; it's a question of when," said Kyle Bass, head of Hayman Advisors LP, a Dallas hedge fund, who has placed wagers on that outcome. He and others, such as David Einhorn's Greenlight Capital ...

[WestwardHo]

Who is buying Japan’s debt?

[Steelfish]

Exactly- if their bond market collapses, the ripple effect on the global economy will be nothing short of catastrophic. We now have a socialistic government in Japan elected in a landslide like Obama.

[JasonC]

Mostly the Japanese financial institutions - their banks and insurance companies and such. Japan has one of the highest savings rates in the world - the reason they continually run trade surpluses incidentally. Small savers in Japan tend to use the postal savings system ("passbook" savings accounts basically) or bank savings accounts - but those in turn often own the government bonds. Rates on the government bonds have been very low for over 15 years now...

[FlyVet]

It's not if, but when, for us too. Get ready.

US debt approaching $13,000,000,000,000.

US unfunded liabilities approaching $107,000,000,000,000.

And keep in mind that's based on official Gubmint figures.

Reminds me of the old Hoyt Axton Pizza Hut commercial.

"Spaghetti come from China...pizza come from Oklahoma...the cultural center of the universe...I wouldn't lie to ya, friend....."

[Steelfish]

Nice explanation- thanks. So, this will mean a collapse of Japan’s banking system!!!!

[campaignPete R-CT]

The crashing YEN. Bullish for Developing Markets

If anyone can figure out Japan, let us know.

[Steelfish]

Of course Japan is not part of the “developing markets” which is a reference mainly to India, China, and Brazil. A crash of the Japanese bond market will impact their domestic auto industry, their golden goose.

[stboz]

We now have a socialistic government in Japan elected in a landslide like Obama

Horseshit. Yo Mama was no landslide winner.

[Steelfish]

Given the nation’s polarization, 3% is the new landslide norm.

[stboz]

The Thought Police been by to see you?

[4rcane]

Japan should be fine as long as their they have high saving, and large trade surplus. But once that changes, they will turn into another US and their currency will collapse. Japan is also having demographic problems - shrinking population, which will accelerate this. Japan in 50 years will be bleak

[Steelfish]

No, just being realistic. Clinton won with less than 50% vote, Bush won with the bare skin of his teeth on both occasions. Go check the number of red states than turned blue in 2008. The electoral demographics have changed in the past 20 years. Sad but true.

[Gapplega]

had one of the highest saving rate, not any more.

[stboz]

In Critchton's State of Fear, doesn't one of the manipulative, advantage-taking guys get eaten by the natives?

The media fit the mold. Bet they taste like shit.

[budwiesest]

Who is buying Japan’s debt?

Anyone driving a Toyota? What do I win?

[HardStarboard]

Lets see: short the Japanese Yen against the US$Dollar - which itself is a highly risky investment.....I guess you could win if the $$ drops slower than the Yen.

Anybody with Derivative smarts want to tell me how to play this.....or tell me "if I have to ask, don't play"!!!

[JasonC]

Japanese households have cash assets of $8.5 trillion. Yes they are saving a smaller portion of their current income than in the long term past, and the rate fell particularly hard during the current recession - maintaining consumption there. But they still have a giant pile of horded cash.

The pretence that Japan is going broke is silly. Government finances there are out of whack, that much is true. But the yen has been about the strongest currency in the world throughout the crisis, with rates in the basement forever, and they are importing deflation from currency appreciation - not the reverse.

The only place recklessly inflating money supply right now is China, and it is doing so precisely because it can get away with it, since everyone regards their currency as undervalued and their trade surplus as impregnable. With the yuan effectively fixed or better than the dollar, they regard these collective market impressions as an invitation to print not just money but real wealth, and they are doing so with gusto. The result is an epicly silly property bubble in China ($300 a square foot capital values for postage stamp apartments in the major cities e.g.), along with market fireworks to match.

[JasonC]

You'd just sell yen futures in Chicago. Very easy. If the yen appreciates to 80 to the dollar or so, you'd lose money. If the yen falls to 100 to the dollar, you'd make as much as the other way would lose. A retrace to the 120 level would be the possible big win - a rise in the other direction of equal size would mean the upper 60s, and isn't remotely possible right now. There is no interest rate differential to speak of (both are effectively zero), so there is no cost of carry - it is just a straight bet on the direction of the exchange rate.

[Steve Van Doorn]

thought I would put this up