Japanese Ministry of Finance To Japanese Bondholders: You’re Screwed!

Wolf Richter's picture

Wolf Richter  www.testosteronepit.com

This has got to be the icing on the Japanese cake. The otherwise bland website of the Japanese Ministry of Finance, more specifically the FAQ page on government bonds, has been catapulted to stardom on Facebook and Twitter. Not in a good way. As you flip through the MoF’s website, page after page, you will mostly see zero Facebook likes and zero tweets. Social media and the MoF ignore each other.

But go to the FAQ page, skip down past the categories of Budget, Taxation, and Tariffs to item 4, Government bonds. Under the second group, skip past Tax questions for individuals, Miscellaneous (Is it a crime if I make a copy?), Price and yield questions, and Coupons to the infamous question 5: “In case Japan becomes insolvent, what will happen to government bonds?

Tweeted 1,645 times, liked on Facebook 3,733 times!

The MoF website isn’t some blog to be ignored (at your own risk) but the official voice of the most important ministry of the most indebted country in the world, whose debt will reach 240% of GDP by the end of this fiscal year. The country borrows over 50% of every yen it spends, and it spends more every year. With no solution in sight. Other than more borrowing. Certainly not cutting the budget, which would be too painful. It wouldn’t be enough anyway. Even cutting the budget in half would leave a deficit. And the recently passed consumption tax increase? It will raise the tax from its current 5% to 8% in 2014 and to 10% in 2015, way too little to deal with the gigantic problem, and years too late. Yet it won’t kick in unless GDP grows at least 2% per year—which has practically no chance of happening.

No, there is no longer a good solution. And everyone knows it.

About 95% of Japan’s debt is held within Japan by government-owned institutions, the Bank of Japan, banks, companies, pension funds, and directly or indirectly by individuals. Hence the question—”In case Japan becomes insolvent, what will happen to government bonds?”—is of primordial importance to just about all Japanese adults.

The question and its answer weren’t decided by some underling. Each word was carefully weighed by experts in the highly hierarchical bureaucracy of the MoF. As these words were polished and examined for every nuance, they were passed up the ladder until they landed on the desk of an official at the very top who approved not only the wording, but also whether or not that question should even be on the website. And the official answer is:

 “Rest assured that the Japanese government will redeem the bonds responsibly.” 

Here is a screen shot of the question and answer:

“Rest assured!” How bondholders can possibly rest assured under these circumstances remains a mystery, in particular since the MoF then proceeds to tell them exactly how they will get kicked in the groin: bonds will be redeemed “responsibly.”

Not when they mature, but responsibly.

Thus, we have the MoF’s official action plan for the moment when the big S hits the fan, the moment when Japan with its declining wages and shrinking working-age population can no longer save enough to mop up all the government bonds necessary to keep the government afloat [read.... Japan’s Slow-Motion Tsunami].

A selective default. Bonds will retain their “value,” but the government won’t redeem them when they mature. It will redeem them in bits and pieces, stretched into all eternity, as it sees fit. You’ll die before you’ll see your money.

This is THE answer, the official answer we’ve been looking for all along, and now we find it on the MoF website where it would have remained hidden in plain sight had not some enraged Japanese spread the word via Twitter and Facebook.

And they filled the ether with caustic FB comments:

  • “LOL!”
  • “Isn’t it called ‘insolvent’ because you can’t pay?”
  • “This is absolutely nothing but mocking the general public. How dare they say such gibberish!?”
  • “Should be a joke.”
  • “Isn’t it supposed to go, ‘Rest assured that the Japanese people will redeem the bonds responsibly?’“
  • “Yeah, the only thing they could rely on is the people’s savings....”

When the legendary savings of the Japanese are drying up, as they’re in the process of doing, the word responsibly will take on a new meaning within the context of one of the greatest recent acts of governmental irresponsibility: creating that debt monster in the first place.

John Mauldin of Mauldin Economics sees similar issues in the EU and the US. The EU, he says, is only left with choices that are now between very bad and disastrous. In the US, he says, Republicans and Democrats will have to hold hands and walk off the cliff together. And he throws in an intriguing tax plan. Read the excellent interview.... John Mauldin's Prescription for Avoiding Economic Catastrophe.

And here is my first foray into Japan—a “funny as hell nonfiction book about wanderlust and traveling abroad,” a reader tweeted. Read the first few chapters for free.... BIG LIKE: CASCADE INTO AN ODYSSEY, at Amazon.

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matrix2012's picture

A late update...


from Shisaku blog  - September 11, 2012

Japan's Politics Stomps On The Accelerator

In The Pickwick Papers, Charles Dickens entitles one of the chapters "TOO FULL OF ADVENTURE TO BE BRIEFLY DESCRIBED."*

I feel the same way about events in politics these past few days.


Tadahiro Matsushita (73), Japan's Finance Minister, found dead at home on 10 Sep 2012, to be hanged, or strangled himself with cords of some kind, claimed to be a suicide act by the authorities.

-- The purported suicide of Financial Services and Postal Reform Minister Tadahiro Matsushita (73) is still the top of the news -- as a such a rare occurrence should be. 

I loathe conspiracy theories and theorists but the official narratives so far regarding this case do not hold together. We are supposed to believe that a man found toppled over had hanged himself, or strangled himself with cords of some kind. We are being asked to believe that his security detail did not have a key to his condominium, having to use Minister Matsushita's wife's key to open the condominium front door. We are being asked to believe that he left goodbye messages to his wife, Prime Minister Noda and the Cabinet. We are being asked to believe that the imminent publication of a Shukan Shincho expose of a purported mistress may have pushed Matsushita to take his own life. (J)

As to the last claim, when you are seventy-three, recovering from prostate cancer and are revealed to have engaged in extra-marital shenanigans, you are well past the "this will ruin my career" stage

Next up should be revelations of the content of the purported three goodbye notes.

Do I expect to be seeing the actual texts, ever? 




And from Shanti Phula's Blog:


Sep 25, 2012
[Shinshu-no-izumi] Death of Minister Tadahiro Matsushita and “Cabinet Approval for Human-Rights Protection Bill”: No Interrelation Exists?

IS Cabinet Approval “The Mouse Goes Abroad When The Cat Is Not Lord”!?  Noda Traitor Party

Subtitle: Death of Minister Tadahiro Matsushita and “Cabinet Approval for Human Hunting Human-Rights Protection Bill”:  No Interrelation Exists? Yesterday on September 19, when I watched the news that the DPJ “approved in the Diet the bill to protect human-rights,” something immediately hit me, the writer of Shinshu-no-izumi, in the frontal lobe.  It reminded me of the suspicious death of Tadahiro Matsushita, minister in charge of financial services and postal privatization.  It is reported that Minister Matsushita killed himself by hanging (in general, to commit suicide by winding a rope or string around the neck) but it is a suspicious death. It was suspicious whether he truly killed himself by hanging because in the beginning, there were conflicting reports about the cause of his death.  Although his secretary and security staff of the Metropolitan Police Department rang a doorbell or called on his cellular phone, they got no reply.  Then Mrs. Matsushita, who happened to be in Tokyo, unlocked the door and enter the room with them and found out the minister.  Some reports say that Mrs. Matsushita reported to call the police and said “My husband has fallen down.” If they immediately had took off a rope out of his neck and had him lie down, they would have briefed the situation and she would never have said “he has fallen down.”


If there should exist a conspiracy to murder the minister, possible reasons which I hear a whispering about on the Internet are as follows:

*Opposed to postal privatization

*Opposed to the human-rights protection bill

*Opposed to foreigners’ political rights

*Prudent to suspend expanded measures for Japan-Korean currency-swap arrangement

 (He had a prudent attitude in view of his position but his real intention was unknown.)

*Expressed to tighten crackdown on insider trading

*Organized a club of young lawmakers to study the future of Japan and history education (as acting secretary-general) *Prudent to revise the Nationality Act

*Organize a club of young lawmakers who support visit to Yasukuni Shrine for wish for peace and for true national interests

*Responded “Objection” to the question on foreigners’ political rights made by Asahi Shimbun ...


. . .

I’d like to say that over and over again, but the mission imposed on the Noda administration by the U.S. is to enact the bill to raise the consumption tax and to pave the way for a contemporary version of the Public Peace Preservation law. The human-rights protection bill will become the most effective tool for suppression of free speech.  The Noda Administration gives the top priority to establishment of an effective system for suppression of free speech.  (I pray for the repose of Mr. Tadahiro Matsushita’s soul.)



MORE STORIES: https://startpage.com/do/search?q=suspicious+death+finance+minister+Tada...


Another suspicious death:

Shinichi Nishimiya (60), Japan’s newly appointed ambassador to China, found collapsed on a street in Tokyo on 13 Sep then died in hospital on 16 Sep 2012, unclear death cause...amidst the crisis.

Money 4 Nothing's picture

"Roo Frucking scrood"

graspAU's picture

This reminds me of a famous quote that "Bonds are instruments of Guaranteed Confistication". You're loaning money to the gunslinger at the poker table who has assistant gunslingers standing on either side of him, and you know that he gets to decide how much the "money" is worth when he pays it back. Not a very good idea.
-SAT 800 – 04/07/2012 – Zerohedge

AynRandFan's picture

There will always be buyers of paper assets as long as the market for those assets is liquid.  Quality doesn't matter.  The only thing that matters is liquidity of the market.  Take that away and we will finally see sane pricing return.

Fred Hayek's picture

Why do I suspect that Kyle Bass is resting assured?

Short Memories's picture

"go anshin kudasai"

LOL Classic! Same phrase the car insurance ads use!

desirdavenir's picture

Couldn't the japanese government wait till the current holders of its debt die, and tax the heirs ? Given the demography of japanese JGB holders, with the inheritance tax at 55%, they could reduce a lot their debt (say halve it in 20 years). Having domestic bond holders can be fun when there is inheritance tax...

Clint Liquor's picture

No. They will need the Bonds to be redeemed to pay for their retirement.There will be no inheritance. That is what will send Japan over the cliff, retirees cash in Bonds to live on.

The interesting thing not addressed in the article is: What happens to the $Trillion in USD Japan is holding if Japan becomes involvent?

desirdavenir's picture

the second question is easy: Fed buys it all ! (QE ?+1) For the first question I haven't made the maths (age of holders, coupons, ratio of redeeming and so on) but I wonder if these data are public

orangegeek's picture

220% times GDP equals Japanese debt. 


Bondholders?  Screwed?  Pretty much.  Defaults pending.  What's interesting is how this will downgrade the Yen and boost the US Dollar, much like the Euro will.



MillionDollarBoner_'s picture

What amazes me is that anyone...anyone...thinks any government bond with a maturity of six years or more will ever be settled.

Think Operation Twist 2.

The FED in particular must be planning to go PHATOOM! before or at that event horizon.

Go figure...

Peter Pan's picture

Do you want a solution? Euthanase all of us oldies at age 65 if we depend on government for pensions or medical. Sounds cold and heartless but we are already euthanasing our younger generation through no jobs or low paying jobs, education debt, expensive housing, wars that they never signed for but for which they are dying for as well as politicians who won't be around to pick up the tab for what they have been doing to the future of the younger generation.

At least in decades gone past the average life expectancy was 15-20 years less than it is today so the oldies departed before they became too much of a burden.

maximin thrax's picture

You misunderstand the prime directive of Government, which is to redistribute wealth.

Retirees, just like government employees, soldiers, welfare recipients, prisoners, etc., are non-productive people whose spending the economy nevertheless depends upon. If you got rid of all the retirees, or all the poor, or whatever "leech" class one wants to make disappear, then everyone making money off providing goods and services to those groups moves into the poor house. Every company that goes from profitable to unprofitable from losing the non-producer's patronage will close down and create more dependents from their former employees; the thinner the profit margin the more certain the demise.

If the poor grew their own food instead of using EBT cards, or simply were provided raw foodstuffs that cost taxpayers only the gate value of the produce, then there would be no McDonald's or Wendy's in poor areas, no Wal-Marts, no Targets. Hell, there would be no grocery store chains. Poor people, as are any other class or group of unproductive folks dependent on wealth redistribution, are simply pass-throughs for money targeting the broader economy and ever-higher GDPs.

When you understand the economy's dependence on wealth transfer you can also see there is no such thing as waste, or even fraud, in government. Given a one-billion-dollar program, whether nine hundred million goes to the intended recipients and one hundred million is absorbed within the bureaucracy, or only one hundred million gets into the hands of the needy and nine hundred million is taken by the bureaucrats, in the end it's still one billion dollars that gets spent into the economy. And these days that's one billion borrowed into existence by the federal government that did not already exist in the economy. $500 hammers was simply economic stimulus.


donsluck's picture

Unproductive? Why do you define the poor as unproductive? They usually work, providing services and goods. They just don't have any disposable income or assets.

Now the rich, that's who is unproductive. They usually spend their days telling others what to do, producing nothing.

maximin thrax's picture

Not the point, so don't take this personally. People without productive jobs can't spend money unless it is somehow handed to them. Poor people, in as much as they need some or all of their income supplemented by government (same as retirees, those on unemployment, on disability, etc. - not making any judgements here) rely on wealth distribution to make ends meet.

The bigger point is that the American economy, for right or wrong, is just as dependent on that wealth distribution. With razor-thin margins, if retirees or public workers or people with EBT cards no longer walk through their storefronts, many businesses would cease to be profitable, and more people would become unemployed as the economy shrinks. I don't like that scenerio, either.  

It is a fact that maximum employment equals minimum paycheck, so productive labor is kept at a minimum so that wages are maximized. This is because we have not learned how to properly monetize leaps in productivity, and have accepted that many people will never work again who are pushed out of the workforce. To absorb everyone not involved in productive work, to maintain an artificial scarcity of productive workers, we have increased the size of government and instituted program after program to increase dependence on government and swell the ranks of public workers. Greater productive labor salary translates to greater public sector salaries, and through the resultant inflation, more money having to be spent on social programs to go into the hand of those dependent on them.

So now our entire economy is driven by government debt. There is not enough wealth today to redistribute, so government relies on redistributing future, yet-unearned wealth by borrowing. And now that the need to borrow enormous sums each year portents interest rates that would crash the whole system, the Fed prints money in quantity to lend to the government at record-low rates. That is simply wealth transfer through inflation from everyone, rich and poor, present and future, who earn and hold Dollars. Again, a bad system, but one that encourages spending over saving, debt over production.

In turn, all recipients of federal money are pass-throughs for money into the broader economy. It is much less for their individual benefits as for the benefit of the economy as a whole that wealth is transferred. Again, I don't like it, and it will end in a bang and not a whimper.

Oldwood's picture

Yes! We could never just let them starve or die of lack of healthcare. That would be inhumane, but, a very late term abortion, as you say at 65, now thats a different story! Its about choice. If the potential parent can abort the child, there is no reason the child can't return the favor when the parent is causing a financial burden and constraining ones lifestyle. Its about avoiding "unwanted" old folks and back alley mercy killings.

donsluck's picture

??? How can an aborted human to ANYTHING????

Ar-Pharazôn's picture

we can begin with your grandpa and grandma

Peter Pan's picture

Too late and to top it all off, they were financially independent and never relied on government for anything their whole life.

Shankopotomus's picture

 Oh really? My grandpa worked for the government all his life, and when he went into the nursing home he had to go on medicaid, so he relied on the government for pretty much everything all his life.  

Peter Pan's picture

Against a back drop of at least 3000 years of history, this period will be seen as the decline of human civilization and values as well as a demographic slide into oblivion brought on by a manic desire to consume at the expense of future generations and then to also seek a level of retirement also at the expense of future generations. We have sought this through excessive promises by government (unfunded liabilities) as well as capital appreciation on our assets which we expect the young to pay us for so that we can have an extended period of manic consumption.

The time to pay for our greed has arrived and will become more and more painful for everyone as the battle between the young (ability to pay) and the old (expectations of payment) comes into play.

Shankopotomus's picture

Speak for yourself because I for one was never greedy, so I never had the means to do any  manic  consumption, nor do I expect the generation behind me to pay for any of the manic consumption I won't be doing do in  future, because I have no intentions of being greedy then either. 

Widowmaker's picture

Far simpler. The death of fraud (fiat) money itself is coming like a freight train, as well as demise of every soul that worshipped it.

Might as well be a guarantee.

marklind's picture

IF(!) Government Debt Level is too high, Japan could unilaterally prolong all Bond maturities to hundred years, while keeping all Coupons constant.

Than they could let the market do the rest. A massive increase in market rates could follow. The result: market value of bonds would shrink to a fracture of nominal. The coupons would still be the same. any pensioner could still live on this meager coupons, but would make a huge loss only by selling it.

Bunkruptcy is easiest by prolonging Debt to near infinity. Japan should convert all debt to a endless maturity. Like the ancient britsh consols. Than the market will do the other job. The politician could blame the markets, like they always prefer to do.

Just a blue print for Bankrupt Gouvernments (which is when can`t afford market rates of debt).

Greetings from Germany


mt paul's picture

find it very ominous 


that the Federal Reserves charter

ends December, 21 2012...

Money 4 Nothing's picture

I have been telling that to big FIAT holders and they don't want to cash out into Gold or Silver, just because one of your dead Prez is on the face of the bill doesn't mean it's our's, or yours for that matter. The Federal Reserve holds the right to recall their paper out of the feild at any time they want. Be advised.

Cash is King?

Gold builds Nations so it's trumped.

Manic by Proxy's picture

I do apologize for this thread jacking, but how many of you have signed Barack and Michelle's 20th anniversary card as shown at the top this page? I was hesitant initially, what with the cost of everything these days. Yet, they are such genuinely nice people who care so much for all the little people over whom they reign. And then I read that this is paid for by the Obama Victory Fund 2012. Problem solved! And to think that all those fine, 99%ers, liberals, Democrats donated their hard-earned, Quanitatively Eased, fiat dollars so that we all could join in to wish America's First Couple a Happy Anniversary. Who's with me?

Zgangsta's picture

I wouldn't read too much into this.  Every official statement from the Japanese government is designed to be so vague and lacking specifics that it can be manipulated to mean whatever they want it to depending on the circumstance.

AnAnonymous's picture

Insolvency can be measured through 'american' econometrics.

This leads to erroneous conclusions.

Now one can look at the issue a different way.

'American' economics is all about consumption.
Debt is a powerful instrument of consumption.
Insolvency comes when the capacity to issue debt is negated.
'American' nations are likely to hit insolvency when there is nothing left to consume.

At that marching point, well, people will have other concerns than knowing if they are screwed because they can not bank on government bonds.

But 'americans' can not provide this kind of answers, that would be self indiction.

So a concise answer came: rest assured.

Things will go as well as they can go and as long as they can go.

lasvegaspersona's picture

the plan is, as it has always been: when the government needs money it will have the central bank print it. The central bank will also buy every asset, down to the munis of Camden, NJ (OK maybe not in time to help Camden) and the price will be the hyperinflation of the currency. The bill will be presented to all citizens in the form of worthless currency....but ALL bills will be paid. every Social Security recipient will get their check. It may not buy a coffee but it will be paid..................................and then we start over. Look for the new improved dollar soon. It will be independent of the old bad dollar. This time it won't be a world reserve currency and for the first time in 50 years the USG just might have to behave its self instead of acting like a reckless teenager with dad's credit card. All paper tied to the old dollar will be worthless (save some to show the grandkids though.)

you might want some real assets....perhaps some that can be hidden for a while from the grasp of a desperate dying political system..

nabi's picture

The problem with your scenario is that it doesn't account for human nature and the reaction of people to these events.  When hyperinflation hits, the innate depravity of mankind will rear its head again.  Ultimately, the reset will be effected by WW3...

steve from virginia's picture


The Japanese Ministry will retire the debt by issuing 'currency' as debts mature. Both the debt and the 'currency' are extinguished. The real problem in Japan are its 54 (roughly) cooking nuclear reactors.


What happens to them ... when Japan goes broke?


Also ... how does Japan pay for its fuel imports?



Widowmaker's picture

Tearing a page from any American financing model, they will just throw the next generation on them, literally.  That ought to cover it up through death.

W74's picture

Clearly the answer is to grow the Japanese economy by 500% next year, Keynes seems to have had the answer to everything.


Richard Whitney's picture

So why has the Yen been in a 40-year bull market?

Imminent Crucible's picture

The JPY:USD is about where it was in 1995. It's more that the USD has been in a 40 year bear market.

booboo's picture

"Bonds, J Bonds, License to Kill"... Moneypenny, squeeze by balls and yes I shall bed you tonight.

anyway's I don't need money, my wealth is stored in my head, I will divey it out in trade for goods when the time comes. I have all the answers to lifes questions. Men will kneal before me for car advise and how to get womenz, nekked womenz will lay beside me and peel grapes to plop on my lips. I will but need to escape my current residence and free my self from the shackles of this sanitorium. Crazy Acres is no name for Kingdom.

freedogger's picture

No worries, here's an "I row you!"

WhiteNight123129's picture

If Japanese were to spend the bonds they hold in 1 year, GDP would increase by 240% nominaly. Japan would print money to accomodate, Prices would go to the roof, that would be fun.


robertocarlos's picture

Rest assured that Japan can never become insolvent. That's my answer.

Heyoka Bianco's picture

The Japanese make houses out of paper, do they not? What about bond coupon origami? Maybe they plan to move all their seniors into a single high rise on those Senkaku Islands.

lolmao500's picture

Any Japanese who still holds bonds is a fool. I mean, EVERY SINGLE MOTHERFARKING SIGN IS THERE.

For Americans to hold US bonds, I can understand... the situation is not ``that bad`` yet. But in Japan, it's freaking obvious to even a 4 years old that they won't get paid back.

benbushiii's picture

Isn't the Fed redeeming our bonds by printing more money?  The Japanese will do the same thing, as the bonds come due they will print Yen to pay them off, that's what Central Banking is all about.  If the Monopoly game you have runs out of cash, go to the shelve and get another game with a fresh set of money.  No government really pays off its debt, it's rolled; and when the rolling stops, the presses roll.

Things that go bump's picture

Please excuse me my ignorance, but who are they borrowing from?  Aren't they just printing funny money like everybody else? 

Vlad Tepid's picture

Why, Mrs. Watanabe.  She's incredibly wealthy don't you know.

Richard Whitney's picture

That funny money has been in a 40-year bull market.

LMAOLORI's picture



That's not ignorance that's reality they print up money and buy our debt and we print up money and buy our own debt and so on aka a circle jerk

davidsmith's picture

Yes, but who kept electing these politicians.  Why, the people themselves?  Tell me, why are the people never to blame.  I think the Japanese are petit bourgeois scum.  Don't we crush petit bourgeois scum like lice?  Think, maybe, yes.



Vlad Tepid's picture

Japanese elections are machine politics at its finest.  They don't even have debates, they just give loudspeaker speeches that everyone hates.

I can see you think you're a Communist but you are an extraordinarily ignorant one and that's saying alot.  A large swath of the Japanese "petit bourgeois scum" (a term I'm sure you do not understand and are merely parroting some equally ignorant professor) vote for the Japanese Communist Party in a vain attempt to get the machine's claws out of their back.  The Japanese Communist Party is the most vital democratically elected communist party in existience and also the largest. 

So put that in your hooka and smoke it.

lasvegaspersona's picture

no...you are thinking of commie, pinko (sorry, progressive, socialist) scum and the simile is not needed....they are literally lice.