Japan nearing debt crisis, says ex-BOJ Taya (current acct balance to go negative)

Reuters(via Malaysian Insider) ^ | 05/17/10

[TigerLikesRooster]

Japan nearing debt crisis, says ex-BOJ Taya

May 17, 2010

TOKYO, May 17 — Japan is likely to face a sovereign debt crisis in three to four years as its current account balance is expected to fall into deficit, former Bank of Japan board member Teizo Taya said today.

“Three to four years from now I expect a sovereign debt crisis to hit Japan and long-term interest rates to surge,” Taya said in an interview with Reuters.

He said the government would probably only start reforming the tattered public finances after such a crisis emerges, driving up government financing costs.

Japan’s public debt is roughly twice the size of its gross domestic product, the highest among industrial countries.

Taya said that until now savings in the corporate sector had helped make up for the deteriorating public fiscal balance and dwindling household savings. But as companies increase spending, “the current account balance is likely to fall into deficit in a few years”.

He argued against a widespread view that Japan is safe from a fiscal crisis because Japanese government bonds (JGBs) are 95 per cent held by domestic investors.

“Foreign investors with a 5 per cent ownership could trigger a crisis if they launch sell-offs,” he said.

There is little room for the government to cut spending, Taya said. “The consumption tax rate needs to be raised by two to four times. The government needs to start full-fledged debate on such a hike.”

[TigerLikesRooster]

P!

[Travis McGee]

Given the global FX chaos, I’d say 3-4 years is optimistic.

[Daveinyork]

The democracies had a similar crisis in the 1920’s and 1930’s, when the politicians led the voters to expect more from the governments than governments can provide. Most democracies failed that test. The result was WWII.

America and Britain just barely passed that test. I think we may fail this one.

[TigerLikesRooster]

Published 2:54 PM, 13 May 2010

Karen Maley

Japan, the land of rising debt

Could Japan be the next Greece?

That’s the question being asked in global bond markets now the PIIGS (Portugal, Ireland, Italy, Greece and Spain) countries have been granted a reprieve – at least temporarily – courtesy of Monday’s $1.08 trillion eurozone rescue package. And with markets now vividly aware of sovereign debt risks, some are wondering how long it will be before attention shifts to Japan, where government debt stands at close to 200 per cent of GDP, the highest level among industrial nations.

Yesterday, a senior Japanese bureaucrat dismissed such concerns, saying it was “not logical to think Japan could be the next Greece”, according to a Reuters report.

Masaaki Kaizuka, a director of debt management in the Japanese Ministry of Finance pointed out that that Japan’s situation was different to that of Greece because the Japanese government was able to fund its debt by drawing on the huge savings of Japanese companies and households.

It is undoubtedly correct that the Japanese government has greatly benefited from the fact that around 94 per cent of its debt is held by Japanese residents. This has allowed the Japanese government to run up massive budget deficits without running the risk of soaring long-term borrowing costs. The yield on the 10-year Japanese government bond is currently around 1.3 per cent.

[TigerLikesRooster]

Japan to cap new govt borrowing: finance minister

AFP - Tuesday, May 11

TOKYO (AFP) - – Japan will limit the amount of debt it issues in the next fiscal year given the heightened market sensitivity to sovereign risk in the wake of the Greek crisis, Finance Minister Naoto Kan said Tuesday.

Amid increased scrutiny of heavily indebted Japan, Kan said the government next year would issue no more than this fiscal year's budgeted amount of 44.3 trillion yen (476 billion dollars).

"Everybody is growing sensitive to sovereign risk" after Greece's debt crisis rocked the global financial markets, he told reporters.

"It is necessary for us to make the utmost effort to keep the amount of new government bond issuance below 44.3 trillion" in the next fiscal year starting April 2011, he said.

After decades of heavy stimulus spending and declining tax revenues, Japan has a public debt mountain bigger than any other industrialised nation, expected to hit 200 percent of gross domestic product in the next year.

This year's new government bond issuance exceeds expected revenue of 37 trillion yen.

[GeronL]

double or quadruple the consumption tax?

How would that effect their economy?

[TigerLikesRooster]

Force people to keep their money at their bank, boosting savings rate. At least that's the idea.

Yakuza will see a business opportunity and run their own black market on 'illegal tax-free' goods.

[GeronL]

If people spend less money, won’t the government collect less in taxes?

[TigerLikesRooster]

I suppose having no savings could lead to default quicker than lack of tax revenue. This is not about resolving the problem and moving ahead, but about holding off the inevitable. The problem never gets solved.

[Del Rapier]

Japan needs to realize that saving Zombie companies just because the families who own them are Old Money is pointless ボードゼル.

[TenthAmendmentChampion]

The fall of the once-mighty industrial power, Japan, is stunning.

What does Taya mean they can’t cut spending? Don’t they have cradle-to-grave benefits in Japan including universal health care?

[TigerLikesRooster]

They will have to cut spending eventually, but not under current gov. After all, they are from “Democratic Party of Japan.”