Kyle Bass Vindication Imminent? Largest Japanese Pension Fund Begins To Sell JGBs

Tyler Durden's picture

Sayonara internal funding. In what we suspect will become a major issue (and warned in April of last year), Bloomberg reports that Japan’s public pension fund, the world’s largest, said it has been selling domestic government bonds as the number of people eligible for retirement payments increases. "Payouts are getting bigger than insurance revenue, so we need to sell Japanese government bonds to raise cash." It would appear the Ponzi has reached it's Tipping Point. Japan’s population is aging, and baby boomers born in the wake of World War II are beginning to reach 65 and eligible for pensions. That’s putting GPIF under pressure to sell JGBs so it can cover the increase in payouts.

The fund needs to raise about 8.87 trillion yen this fiscal year. GPIF is historically one of the biggest buyers of Japanese debt and held 71.9 trillion yen, or 63 percent of its assets, in domestic bonds as of March.

This leaves the biggest question "to whom will the pension fund sell?" After all it is all marginal and everyone just front-runs the biggest players (Governments and their Central-Bank caring internal funds). Now that the pensions funds are out, there is no more incentive to frontrun them - a la The Fed - which is summed up by the fund's manager "There isn’t much value in short-term notes as the BOJ’s massive asset purchases have made their yields extremely low."


From our April 2011 thoughts:

In the world of bonds, few things have perplexed investors as much as the ridiculously low (and going lower) rates of Japanese Government Bonds (JGBs), at last check yielding 1.22%. Granted "deflation" in Japan has long been quoted as the key driver for the ongoing decline in real and nominal rates, but in practical market terms it was always the fact that there was a buyer of first and last resort, usually this being either Japanese citizens directly or their proxy, the Japanese Government Pension Investment Fund (GPIF) that kept yields in check and sliding


and from SocGen's Dylan Grice 2010 views (full presentation here):

This is far from just a JGB market problem. As Japan's retirees age and run down their wealth, Japan's policymakers will be forced to sell assets, including US Treasuries currently worth $750bn, or Y70 trillion "eight months" worth of domestic financing. At nearly 10% of the outstanding US Treasury stock, this might well precipitate other government funding crises (bearing in mind that the Japanese model is the argument buttressing confidence in Western government bonds in the face of deteriorating fiscal conditions). At the very least I'd expect it to trigger an international bond market rout scary enough to spook all other asset classes.


And As Kyle Bass has questioned numerous times, will 2010 be the beginning of the end of flawed Keynesian economics?

Maybe Japan's will be the crisis that wakes up the rest of the world and triggers some tough decisions on world-wide debt loads. Or maybe not - maybe the Greeks will beat them to it? or the Irish or the UK, or the US? Like banks in 2007, developed market governments today rely on sustained capital markets more than any time in their history. What if they shut?

(h/t Brian)

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Hulk's picture

Hmm, reminds me of a snake eating its tail...

ACP's picture

I thought Bernanke was American?

Hugh_Jorgan's picture

"Reality is not optional" ~Thomas Sowell

Precious's picture

I doubt that Tyler.  For one thing, what do you think these Japanese people will do with the pension payments they receive.  Buy iPhones?  No.  They will put the money in the bank, because they really don't need it.  Japan isn't the USA.  The USA has about 50 million people living below the poverty level.  Japan has around 1 million people living below the poverty level.  As a percentage, the poverty level in Japan is 1/4 the poverty level in USA.

Like I said, these pensioners probably don't need the money and will likely just bank it again.

Subliminal messenger's picture

What about the declining population? Their population numbers are dropping fast.

Thomas's picture

Passed along Kyle's hour-long video to a colleague in which he described his views on everything including Japan. My friend ordered his first shipment of gold that day.Bass is not alone in his view about Japan, but he is one of the more compelling spokesmen on the subject.

Rick Blaine's picture

Yeah...right or wrong, he's a pretty interesting speaker about all this stuff.

I've read a couple of articles in recent weeks/months which basically claim he is/was wrong about if the matter is settled...

What's funny about those articles is that they all seem to suggest that Bass has predicted that Japan would come unglued "immediately" (i.e., within a few months or so) after the first sovereign default in Europe...

That, at best, is a "mischaracterization," if not a flat out lie, about what Bass has been least from what I have heard him say on the subject...

Rather, his comments on the timing of "it" in Japan have been that the situation(s) in Europe would be an "accelerant" for what would eventually happen in Japan...and he certainly hasn't given a definite timeline...again, at least from I have heard.  In fact, at one of the AmeriCatalysts events (maybe one of the videos you are talking about) he specifically said something to the effect of "the bill is due today in Europe...tommorow in Japan...and here in the U.S. the next day...and of course those days are separated by years..."

Now, MAYBE one could criticize him for not being more specific with his timeline...

That said, based on his record in recent years, when he speaks, I listen.

Richard Chesler's picture

Cue the CNBC bulltards: Japan is different!

Dr Benway's picture

LOL. If a trade is painful enough to be known as 'Widowmaker', then in the end its bound to make major coin cause only the true believers will be holding on. The Japanese ponzi seemed everlasting though.


An Australian Ponzi:

indygo55's picture

He's always been "wrong" until in the end it is discovered he was right, very right. And I think he's right this time too.

conork's picture

Can you link me to his vid please?

Rick Blaine's picture

I'm not sure if you were addressing me...but here are the 2010 and 2011 AmeriCatalyst videos with Kyle Bass...

Each is about an hour long...but WELL worth it, IMHO.





old naughty's picture

and soon the health bill from fuku will pile up.

Fedophile's picture

That's good news; fewer people, fewer expenditures.

ACP's picture

Actually, there are about 20 million people living in poverty in Japan. Unemployment is low, but the wages have kept up by going even lower. It's worse than most people know in the US. Single recent college grads live either with their parents or in sub-500sf apartments, and in many cases, sub-250sf apartments. It's simply that people have too much trust in the government and take whatever bullshit the government dishes out.

Google some news stories on this. It's pretty bad.

fonzannoon's picture

At the end of the day it does not matter what the reason is. If they are that resolute about it then it goes on and on. I imagine thats why the Germans wake up every day and just work, right up till the end. They may be pissed about it but they don't know any other way. Thats just my guess.

Precious's picture

Actually, you've probably never been to Japan.  Your impressions are laughable.  But Google away genius.

ACP's picture

Geez, I didn't mean to provoke a personal attack.

But yes, I was there, late last year, genius.

Mentaliusanything's picture

I love the place but 35% of the workers are now part time/ low paid. Taiwan and Sth Korea have slowly overtaken them. Japanese Government admits its isolatonist policy to Foreign workers has force fed the decline of the aging population. The young Japanese don't want children and to marry. It is a fact it is a candle burning from both ends. They have tried to use labour and capital outside the country but that is not helping the Japanese people, just the Large Corporations. Japans future has not many positives. Is this what Governement intervention/ QE does? if so it is predictive.

The lost 20 years 

ACP's picture

At the risk of beating this subject completely to death, yes, it is wonderful there. In what other place can a bajillion people be walking about from place to place in a complete frenzy (at least in the city), but you still feel comfortable and unstressed?

The one main factor that will be bad for Japan in the short and intermediate future is it cultural cohesiveness. This, however, will be an incredible boon long term. I don't think any other country has this going for them. As long as this stays intact, the future will not be as bleak as in other countries (US) where politicians are actively destroying the country for political gain.



Zgangsta's picture

Comfortable?  Yes.

Unstressed? Absolutely not.  But they do have a stronger level of gaman that keeps them from blowing apart too often, and when they do, it usually manifests in the form of throwing themselves in front of a rush-hour train rather than causing physical harm to others.

They may be the first to crack, and the last to totally disintegrate.

Rogue Trooper's picture

Thanks ACP.  A thoughtful comment.... Japan does have this feature that other 'Nation States' do not have.

No one gets out of this 'mess' without harm.  When I see or observe America I see a country of States, Philosophies, Beliefs, Cultures, Political (Red vs Blue Team) and races that just plain do not get along.

Completely polarised and wating for the trigger to explode.  Many other Countries have similar issues but they are also not so large and have such a large, diverse, population.

This will not end well.

N. B. Forrest's picture

The United States is too big and too diversified.  It will either split apart peacefully, or it will be a long drawn out ugly nightmare. 


Let's follow the post-Soviet model and not the post-Yugoslavia model.

Calmyourself's picture

They had better throw together some nukes, they can probably do it in a day or two any way but if their are young women there the Chinese will come sniffing soon..  About 20 million strong I'd say..

Whiner's picture

Easter Island Extinction Award. 2036. And the winner is (drum roll, pause) The Land of the Setting Sun! (golf clap, crickets).

Precious's picture

Then you should likely know better than to say there are 20 million people living in poverty.  That's just moronic.  Look at the facts.

Attitude_Check's picture

Your math is wrong.  The website you reference has the % of Japanese population below poverty as 15.7% and according to Google the latest estimate of the Japanese population is 127.65M, so the total is ~ 20M people below poverty level in Japan.

If you are going to flame someone for being moronic, you should probably not post links to data that prove you wrong and them right.

Nage42's picture

Well, I only lived there for 15 years, from 23 -> 38, so across the whole young->middle-age demographic.

I for one, think his assesment is pretty much right on.


I share his optimism for Japan's ultimate future outlook bacause of their willingness to work together (westerners, other than maybe Oz/Kiwis, won't have a clue about the extent of this), but holy crap there's gonna be a rough patch when the people have had their last straw with their failed politicians and paper-pushers... it will be ugly.

1000pips's picture

It is personal, idiot comments like yours that insure your time on this site is limited-do it one more time and we will remove you- trolls like you have tripled since the ponzi has started falling apart...troll somewhere else-"precious".

daedon's picture

Spot on, which is why you have 11 ups and Zero downs,  the real Japan was never what we were led to believe, even in 1987 when Jogn Pilger made his documentary titled "Japan Behind the Mask"

Zgangsta's picture

It doesn't seem like there are that many because they are so well-behaved.

Take a walk in a park in Shinjuku or Ueno, and compare with what you might see in NYC...

Doubleguns's picture

ACP, This is a bit dated so the statistics are actually a lot worse but it demonstrates exactly what your talking about. Before anyone asks I lived there 10 yrs and return there every year. I do know.

Frozen IcQb's picture

Like the US and the UK, Japan’s economy is heading of the cliff. Their population is aging rapidly and both their private pensions and social security benefits are mostly un-funded. Savings are declining. Japan has very little energy and natural resources. Commodities are imported. This was not a problem while Japan was running a massive trade surplus. The GDP was supported by exports and a cheap yen supported an economy of exporters. The BOJ intervened constantly to maintain a cheap currency. As a result, they have accumulated huge FX reserves of which 1,000 billion is denominated in USD and parked in US treasuries.

Here’s the game changer: The global economy is slowing. Japanese manufacturing jobs are moving to other Asian countries. Japan needs energy and commodities to rebuild its infrastructure. 30% of their electricity generating capacity has vanished because all their nuclear power generators are now offline. Energy imports have soared. They are now running a trade deficit with the US and China that will likely continue. This trade deficit will force a change from a weak Yen to a strong currency policy to facilitate their infrastructure reconstruction through cheaper imported material and energy. Their debt to GDP is over 200% and that’s excluding the unfunded liabilities. They need money and printing is no longer to their advantage because it makes imports more expensive. The incentive for a weak currency is no longer there.

Consequently, I believe the BOJ will buy JGB’s while the Japanese government repatriates some of their USD FX reserve made possible by selling USD assets. Selling US assets and dollars for yens will exert downward pressure on the USD/JPY pair. A rapid unwinding of the Japanese carry trade will follow. US import prices will escalate as a result to the detriment of over-leveraged and unemployed American consumers.

Vampyroteuthis infernalis's picture

Good analysis IcQb. We are looking into the crystal ball as the US unless we change our ways. We may be importing labor in the form of low level labor. What we are lacking is high skilled labor. This will become rare when the US baby boomers start to retire and US business remains picky to their own detriment.

Bobbyrib's picture

We import our fair shares of skilled workers as well. It's called the visa program. What US corporations won't do is train Americans to do the same jobs. The compensation for skilled labor is going into the toilet, because we import too much labor.

Vampyroteuthis infernalis's picture

Bobby, you are right in the fact that we import skilled labor. They are brought in on visas, worked to death and kicked to the curb. People in industry are tired of the smelly Asians. They are good hard working citizens, but do not bring much to the table for company culture or community.

Frozen IcQb's picture

The most important question no one dares to ask is:

What can we make that Asia will buy?

Frozen IcQb's picture

Thanks, I needed the laugh.

reader2010's picture

We can't complete with Russia and other Eastern European lands. 

e-recep's picture

protection (mafia-style)

Rogue Trooper's picture

They really wanted the F22?  Thinking about it even the Aussies would have bought 50 or so.