Guest Post: On Japan’s Bond Market And Its Economy

Tyler Durden's picture

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NewThor's picture


At this rate, we'll be lucky to make it into 2012.

2016? LOL

tonyw's picture

earthquake of 8.9 recorded at 2:46 local (0546 GMT), probably largest in Japanese recorded history.

tsunami of 10m has hit Sendai, most of Pacific on alert.

small ships washed up on land at hachinohe.

nukes auto shutdown, no known leaks, one on fire.

airports shut. oil refinery outside Tokyo on fire.

IMHO it's going to cost >$100bn


Kobe Beef's picture

It missed Tokyo. Who cares?

asdasmos's picture

Someone I know keeps using Japan as an example of where the US is headed....

Dan Duncan's picture

In Japan more people have retired since 1999 than have entered the workforce and by 2015, 25% of Japanese will be aged 65+.

 Japan has the fastest declining population and lowest birth rates in the world. Between 2005 and 2030, Japan's population is forecast to diminish by 9.8%, with the working population dropping by 12.9%. Japan's birthrate fell below two children per couple in 1975 reaching 1.26 in 2005.

Couple these facts with Japanese attitudes towards other races and ethnicities (the UN, for example has described as having "a deep and profound" problem with racism")...

Japan is in a death spiral...and the swirl is hitting that fast-rotating zone just entering the portal from the toilet to the sewer... 

Japan's LT bonds make sense if they can push the lifespan to 120-125.

Kobe Beef's picture

Exactly. There won't be any Japanese left to pay these bonds, nor Japanese left to be paid. Everyone in Japan already knows this. That's why they don't care & the yields dont move. Shogunai desu. Zettai shogunai.

Vlad Tepid's picture

People always decry the declining population, but as long as they can hold back immigration, they are solving their own unemployment problem through supply destruction.  I'd say chronic unemployment is a far worse problem than bond funding.

The thing everyone forgets is that Japan has been in two serious "death spirals" in the last 150 years.  But after both the Meiji Restoration and the destruction of the military police state in 1945, Japan came back stronger than ever, literally.  Through a complete wipeout - death spiral -  they actually STRENGTHENED their position in the world.  Unique, I'd say and something to watch/bank on.

jimijon's picture

I think we're turning Japanese, we really think so.

Sudden Debt's picture

What the Japan lesson teaches us is this:





DonutBoy's picture

Well I completely agree with a) and b), what I see missing is an analysis of how new debt can be purchased domestically given the age of the population. 

Sudden Debt's picture

1. people buy the debt.

2. When the people die, 60% of the assets go to the state through tax, so they get their own debt scratched.


In a way it's like a monetization programm spread over the generations.

spanish inquisition's picture

Japan is really a banksters paradise. A subdued people willing to roll over massive amounts of debt and take out 100 year mortgages. No need to incite a war for stimulus when the highest aspiration is to become a salary man and make interest payments the rest of your life on the 550 square foot 1 bedroom mansion.


kengland's picture

This just in....


Sue Herera of CNBC just confirmed that she believes the bull market IS NOT OVER!


That's the best facking news I've heard all day. Thank GOD for SUE and RON


buzzsaw99's picture

The old people in Japan will never forget the bankster screwing they got in the stock market and real estate. Bonds by process of elimination bitchez!

masterinchancery's picture

Bonds at 3% an opportunity? Oh sure.  Especially from a country whose demographics are so bad that they won't exist in 100 years.

kaiserhoff's picture

Thoughtful piece, and a good reason to read ZH.  Culture matters, both for good and ill.

tom's picture

Complete nonsense. The Japanese believing their government can make good on its debts to them without inflation doesn't make it so.

The only thing that keeps the Japanese bond market breathing is the growing volume of national savings, due to recently favorable demographics. The government pays interest on the public's existing savings out of the net growth in savings. Since there's no inflation and the interest is only 1%, this has worked for a long time.

But saving in the form of public debt is just a claim on future tax revenues. The Japanese people have far too many claims on their own tax revenues to realistically be able to pay themselves back. As soon as redemptions outnumber new savings, the whole things rapidly collapses, either through inflation or default. And that recently favorable demographic is in the process of changing to very unfavorable. Japan is changing from a society dominated by late-middle-aged people, who save most, to one dominated by retired people, who dis-save most.

Captain Willard's picture

"when its public debt levels double its bond yields will need to halve. However, a real 2.5% wealth transfer is probably too much going forward as Japan’s private sector outlook will most likely become bleaker"

He is basically forecasting a deflationary implosion in Japan. How many democracies have experienced one without regime change?

steve from virginia's picture

Hmmm ...

When Japanese policymakers undergo future campaigns to “get control of the deficits”, bond yields will spike and most likely undermine the intermittent austerity efforts. Future austerity attempts will represent extraordinary opportunities for intrepid investors to buy long term JGBs.

I don't understand what would be the driver for a spike, not inflation but what, exactly? Maybe foreign exchange volatility.

Trapped in ZIRP much like the Yanks the Bank of Japan does not have much in the way of an independent monetary policy. What does this leave the Japanese with?

They can have free- flow of capital (and a current account surplus) or floating exchange rates but not both. I cannot see Japan imposing capital controls which means a greater likelihood of higher rates over much longer time frames than Mr Ricciardi suggests.

I'm not saying he's wrong and his insights are both valuable and a cut about the run of the mill analysis of Japan's macroeconomy. It just seems to me that Japan has less leeway with regard to exchange rates and even less with regards to knockon effects.



Ahmeexnal's picture

Mega earthquake hits Japan. Tsunami approaching.


snowball777's picture

My wife and I used to joke that we lived outside of the 'Tsunami Zone' along the CA coast, but I've taken a sudden interest in the data from this buoy.


saulysw's picture

A lot of people are going to die in the water. This is big, really big.

Check out the footage on CNN. Houses, cars and boats all messed up in the wave. Some on Fire, all wrecked. Too fast to run from, even drive from I suspect. Very sad.

snowball777's picture

The Japanese regard their public debt as safe.


I'm reminded of the Japanese holdouts that didn't know or want to admit that WWII was over. Such tenacity!

Bertie Wooster's picture

This piece makes no logical sense whatsoever.  Was this translated?  There were contradictions from one sentence to the next.  If someone else understands what the heck he is saying, I'd sure like it explained in english.  


Seriously, what in god's earth is this guy talking about?  I can't even summarize his conclusion, much less his analysis or logic.  Is he saying Jap bonds are going up or down?  Should I own the yen, or sell it short?


Lastly, his identifiers in many sentences cannot be traced.  For instance, when he says Jap bond rates are the rent charged...   who is charging the rent, the Jap gov't or the bondholders?


Maybe there's some brilliance here, but let's catagorize the author.  Who is he, and how does he make his money?  For all I know, this guy could be a paid shill for selling Jap gov't bonds?  Who are you?