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A Quick And Dirty Look At Japan's Nearly ¥1 Quadrillion In Debt

Tyler Durden's picture





 

Scouring through the news screens, we nearly fell of the proverbial chair after reading the following Bloomberg headline paraphrasing a Nikkei report: "Japan May Buy Chinese Govt Bonds, Nikkei Says....Japan is seeking to diversify forex funds and strengthen economic cooperation with China by helping make yuan more international. Japan may purchase a total of $10b worth in stages." Naturally, there are two interpretations: the ugly one is that Japan, the 3rd largest holder of US debt after the Fed and China, is considering gradually abandoning the dollar or, as the term is better known in polite circles "diversifying." The second one, and the far more amusing one, is that Japan will somehow bail out China by providing the much needed credit money that will translate into GDP (at a sub 100% ratio of course, because as is well known by now the world has reached the stage where one unit of debt generates less than one unit of incremental growth). The reason why this is amusing is because as the chart below shows, Japan's debt is now a hair's width below ¥ 1.... quadrillion. And yes, ignore the fact that the demographic squeeze in Japan is already forcing households to proceeds to monetize the largely domestically held debt. So, we wonder, where will the JGB debt curve go next in the deflationary basketcase that is Japan? As for where it has been, see below.

Chart: BBG

And for those wondering when Japan will officially breach one quadrillion in debt (roughly $13 trillion in USD terms) here is AFP with the low down:

Japan's public debt is expected to swell to a record $13.5 trillion as the government finances reconstruction efforts after the March earthquake and tsunami, reports said Saturday.

 

Japan's debt is already the industrialised world's biggest at around twice its GDP, after years of pump-priming measures by governments trying in vain to arrest a long economic decline.

 

The public debt is expected to reach 1,024 trillion yen ($13.5 trillion) by the end of this fiscal year to March, up 99.75 trillion yen from a year earlier, the Yomiuri daily reported citing, unnamed finance ministry sources.

 

The national debt will inflate as Tokyo plans to issue bonds worth 11.55 trillion yen to finance the reconstruction measures in the disaster-hit northeast, the Yomiuri and NHK public broadcaster said.

 

The government spending for the year to March is also expected to swell to a record 106.40 trillion as the series of extra budgets will exacerbate the nation's already tricky fiscal condition

 


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Mon, 12/19/2011 - 13:55 | Link to Comment fourchan
fourchan's picture

more yen to buy frns with, tbc.

Mon, 12/19/2011 - 14:02 | Link to Comment trav7777
trav7777's picture

they've got to find somewhere that is still growing credit so they can grow.  The domestic economy isn't cutting it

Mon, 12/19/2011 - 14:06 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

So... China?

LOL.

Mon, 12/19/2011 - 14:22 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Maybe they should buy ZNGA

Mon, 12/19/2011 - 23:14 | Link to Comment TruthInSunshine
TruthInSunshine's picture

Whisper rumor that Japan is buying Chinese Bonds via a rescue package for Japan funded by Myanmar, Haiti, Grenada & The Galapagos Islands' Teachers, Electricians, Millwrights & Carpenters Union Pension Fund.

Mon, 12/19/2011 - 19:54 | Link to Comment masterinchancery
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Since Japan is in a demographic death spiral, they should be paying people to have kids.

Mon, 12/19/2011 - 20:49 | Link to Comment Stuck on Zero
Stuck on Zero's picture

The U.S. should be paying some people not to have kids.

Mon, 12/19/2011 - 13:58 | Link to Comment homer8043
homer8043's picture

Japan has an old population and exodus. Lots of taxpayers and savers. This will end well.

Mon, 12/19/2011 - 14:44 | Link to Comment Winston Smith 2009
Winston Smith 2009's picture

Correct. Kyle Bass on that, starting at 2:45:

http://video.cnbc.com/gallery/?video=3000005603

Mon, 12/19/2011 - 17:11 | Link to Comment flattrader
flattrader's picture

>>>Japan has an old population and exodus.<<<

And lots of radiation sickness being diagnosedd as the "flu."

I check in at enenews about once a week to read the public health stories leaking out of Japan.  It is not good.

Nosebleeds, fatigue, purple rashes, fever...kids having heart attacks and a recent rash of stillbirths and miscarriages (officially reported) that may have been severely deformed infants who died shortly after birth or were euthanized in reality...

Mon, 12/19/2011 - 13:59 | Link to Comment hedgeless_horseman
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Hello, Mrs. Watanabi?  I'd like just a minute of your time to tell you about some amazing opportunities in BRICs...

Mon, 12/19/2011 - 14:00 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

... and the circle-jerk is complete.

Mon, 12/19/2011 - 14:02 | Link to Comment High Plains Drifter
High Plains Drifter's picture

well we have been munching on the t word since 2008, now we are starting to talk about the q word..........man that was fast..........

Mon, 12/19/2011 - 17:39 | Link to Comment mccoyspace
mccoyspace's picture

At least the next multiple beyond that is also a Q word, so there is some, ah, savings there.

Mon, 12/19/2011 - 14:04 | Link to Comment Dick Darlington
Dick Darlington's picture

Oh, dirty it is!

Mon, 12/19/2011 - 14:10 | Link to Comment DaveyJones
DaveyJones's picture

they already tried the other dirty way out

http://www.asianews.it/index.php?l=en&art=15588&size=A

Mon, 12/19/2011 - 14:11 | Link to Comment stopcpdotcom
stopcpdotcom's picture

Quadrillions here we come!!!

Mon, 12/19/2011 - 15:00 | Link to Comment sitenine
sitenine's picture

Congrats Japan!
You have won another decade of stagflation!
Chuck, tell our runner-ups what we have for them.
Austerity, BITCHEZ! Better luck next time.

Mon, 12/19/2011 - 14:13 | Link to Comment Manthong
Manthong's picture

Trillions are so 2011.

Nice to see quadrillions entering the vernacular for the new year.

Mon, 12/19/2011 - 14:24 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

We're all going to be billionaires!

Mon, 12/19/2011 - 14:25 | Link to Comment nwskii
nwskii's picture

On a fast track to Quintillion. It has 18 zeros

Or

$1,000,000,000,000,000,000.00

Chump Change Bitchez

Mon, 12/19/2011 - 14:19 | Link to Comment Al Huxley
Al Huxley's picture

Soon everybody who follows this is going to be reminded of where google got their name.

Mon, 12/19/2011 - 14:39 | Link to Comment qussl3
qussl3's picture

Googolplex anyone?

Mon, 12/19/2011 - 14:26 | Link to Comment TheGardener
TheGardener's picture

6 billion new calculators with all those digits !
Growth you can believe in.

Mon, 12/19/2011 - 14:30 | Link to Comment NumberNone
NumberNone's picture

Quadrillion...then Quintillion...then Sextillion.   Ironic that we will all be fucked long before we reach sextillion. 

Mon, 12/19/2011 - 15:47 | Link to Comment ZackLo
ZackLo's picture

then septillion. then octillion (a special number for the vampire squid), I hear blankfein grows 8 appendages and starts squirting red ink all over his shareholders...

Mon, 12/19/2011 - 16:22 | Link to Comment omniversling
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i believe that 'squidillion' is the denomination closest to infinity.

Mon, 12/19/2011 - 14:32 | Link to Comment slewie the pi-rat
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"Japan may purchase a total of $10b worth in stages."

so, fade that!

Mon, 12/19/2011 - 14:39 | Link to Comment JW n FL
JW n FL's picture

 

 

Japan is fine..

We like Japan.. unlike Europe.. or even Israel.

Japan is a team player and that alone will see them clear of any real danger regardless of all this huffing and puffing about how Japan is at risk.

anyone that would like me to source and site the facts that you could easily find on your own if you spent more time reading and less time cheerleading on the back of someone else's bandwagon.. let me know, I am happy to dumb it donw for you.

My Motto in life.. You are dumd enough and I make it simple enough.

Mon, 12/19/2011 - 15:10 | Link to Comment a1sinclair@aol.com
a1sinclair@aol.com's picture

Read my post and then check the numbers and you will have to eat crow.  The only number I have not verified is the 99.75 Trillion yen of issuance.  It must include some rollover.

Mon, 12/19/2011 - 14:54 | Link to Comment a1sinclair@aol.com
a1sinclair@aol.com's picture

It is the fact that the debt is held in Japan, much of it by large financial institutions that have become net sellers, that is the problem because of a savings rate that has declined from 16% to 2% and likely headed negative. Basically, it is the demographics that are hitting Japan now!  Bank deposits in Japan are double those of the United States and most banks hold from 20% to 30% of their assets in Japanese Government Bonds and most of the banks are no longer growing.  The Japanese Retirement Fund ($1.4 Trillion) is mostly invested in JGB's and is now liquidating $80 Billion this year and more than that next year.  The largest financial institution in the world is Japan Post Holdings, a depository and insurance company ($3.5 Trillion and over 70% of total assets in JGB's) and they have also become a net seller.   Other Japanese Banks and insurance companies are loaded with JGB's and as the older people retire they must withdraw principal to fund living expenses because the CD return is less than .5%.  The young people are not making enough to save and the people with the money are retiring or dying.  The handwriting is on the wall that the jig is up.  On December first, Kyle Bass called Japan, "A Giant Ponzi Scheme that only has months to go".  Almost all of the former big buyers are now net sellers of JGB's.  The ten year yields 1%.  If new buyers must come from outside Japan, it would take 3.5 to 4% to attract buyers.  They are on watch for a credit downgrade and their debt is 230% of GDP.  Basically the people have trusted the Japanese government and the government has wasted their money.

Their budget for this year projected borrowing 50% of spending and then they had the earthquake.  Issuance was to be about 44 Trillion yen but now the figure in your article is 99.75 Trillion yen.  This probably includes the deficit, supplemental budgets and the need for $80 billion to replace the bonds liquidated by their retirement fund.  This is over 100% of the original spending amount in the budget.  They are the most in debt and also the largest deficit as a % of spending of any country in the world.  They are near $13.5 Trillion in debt with about a Trillion dollars of foreign exchange reserves--If is not enough to save them.

Mon, 12/19/2011 - 14:55 | Link to Comment lolmao500
lolmao500's picture

So how do we make money from this? Any ETF short Japan?

Mon, 12/19/2011 - 15:14 | Link to Comment a1sinclair@aol.com
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I am short Japanese Government Bonds and yen.  I would also short Japanese Banks (ETF?)

Mon, 12/19/2011 - 15:36 | Link to Comment Pancho Villa
Pancho Villa's picture

Not so sure about shorting the yen. If they start selling their US Treasuries it could cause the yen to rise. Of course, eventually they will start printing which would tend to pull the yen down. But by then, the US may be printing at an equal rate.

Mon, 12/19/2011 - 18:33 | Link to Comment a1sinclair@aol.com
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It is a huge banking problem and there will be a rush to leave Japan.  The move will be to gold and out of yen.  There is less than $1 trillion of FX reserves outside the country and there is over $16 Trillion of bank deposits.  The United States only has around $8 Trillion of bank deposits.

Mon, 12/19/2011 - 21:22 | Link to Comment Pancho Villa
Pancho Villa's picture

Short yen, long gold: sounds good!

Short yen, long dollars: no prediction. Might work out, depending on who collapses first. But I worry that in the initial stages of Japan's collapse they might start selling UST's in order to make up their funding shortfall.

Shorting JGB's could be very profitable, because as yields rise, the yen might also strengthen resulting in a double whammy.

Mon, 12/19/2011 - 15:28 | Link to Comment collon88
collon88's picture

EWV is ProShares' UltraShort (2x) MSCI Japan.   

Mon, 12/19/2011 - 18:29 | Link to Comment a1sinclair@aol.com
a1sinclair@aol.com's picture

I am short JGB's in Tokyo.  100 million yen per contract.  They are also traded in Singapore (10 million yen per contract).  They are 10 year bonds.

Once it starts there will be a rush to move out of the banks and out of yen and then into gold.  It is really amazing that we have around  $8 trillion in U S bank deposits and Japan has over $16 Trillion.  It is so sad that the Japanese people are so conservative and have saved all this money and basically it was all spent via Keynesian infrastructure stimulus to restart their economy.  It did not work.  There is a real lesson for us borrowing money to give to people to spend as stimulus---no asset is created.  It just destroys the future for our kids.  It did very little in 2011.  Why are we wasting the money in 2012?

Japan's government has been a systematic destroyer of wealth.  Their stock market is down 80% over 22 years and their real estate is off 70% over 21 years and now they are going to lose 20 to 40% of their bank deposits, insurance funds, etc..

Mon, 12/19/2011 - 23:11 | Link to Comment Zero Hero
Zero Hero's picture

Short JGBs with "PowerShares DB Inverse Japanese Govt Bond Futures ETN" (NYSEARCA:JGBS) or "PowerShares DB 3x Inverse Japanese Govt Bond Futures ETN" (NYSEARCA:JGBD).

The 3x leveraged ETN does not suffer decay as much as most other leveraged ETFs/ETNs as it works on the monthly increase/decrease of the underlying futures, not daily.

Alternatively you could short the regular JGB ETNs.

Mon, 12/19/2011 - 22:14 | Link to Comment BigInJapan
BigInJapan's picture

Every last talking head in this country says there is no debt problem because it's all domestically held. The people believe what they see on TV and nobody... NOBODY is calling for reduced spending.

The fact that every ZH story on Japan gets like 50 comments, whereas an article about a bank run in Macedonia or some other European backwater attracts hundreds tells me it's not only the Japanese that are in for a shock when this thing hits the wall.

Time to start paying attention to where the most immediate problem is - JAPAN.

Tue, 12/20/2011 - 01:32 | Link to Comment StychoKiller
StychoKiller's picture

Over 190 Countries and only 2 eyes -- do the math.

Tue, 12/20/2011 - 01:31 | Link to Comment qussl3
qussl3's picture

With Japan being one of the largest if not the largest net creditor in the world, wouldnt there be a risk of corporates repatriating to buy JGBs?

May not make any economic sense but i'd never underestimate Japanese solidarity.

Mon, 12/19/2011 - 14:49 | Link to Comment lolmao500
lolmao500's picture

America's debt can make it to 30 trillion easy. Oh wait, it's already above that.

Mon, 12/19/2011 - 15:02 | Link to Comment f16hoser
f16hoser's picture

Quadrillion. Is that a lot? Just for one country?

Mon, 12/19/2011 - 15:09 | Link to Comment DutchR
DutchR's picture

Doesn't Japan have some nuclear thingy going on?

 

 

 

Mon, 12/19/2011 - 15:20 | Link to Comment Non Passaran
Non Passaran's picture

One. Quadrillion. Yen.

(in voice of Dr. Iiwiru)

Mon, 12/19/2011 - 15:23 | Link to Comment monopoly
monopoly's picture

Interesting that when so many media and news articles talk about recovery, uneven, good in N. Dakota, bad in Nevada and all will be well in a couple of years, noone mentions "debt". It is like this is a side show to the real recovery and will not make much difference moving forward.

How can intelligent human beings ignore this thermo nuclear device about to go off. Unemployment down, stores busy, economy getting better and Bloomberg advises how "absurd" the downgrade of US was considering how investors are flocking to the dollar. 

Just a one eyed blind bandit in a room with the blind. Makes 0 sense to me. 

Tue, 12/20/2011 - 03:54 | Link to Comment LudwigVon
LudwigVon's picture

Wow... really?

“The man who never looks into a newspaper is better informed than he who reads them; inasmuch as he who knows nothing is nearer to the truth than he whose mind is filled with falsehoods and errors”

-Thomas Jefferson

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“We are grateful to the Washington Post, The New York Times, Time Magazine and other great publications whose directors have attended our meetings and respected their promises of discretion for almost forty years.  It would have been impossible for us to develop our plan for the world if we had been subjected to the lights of publicity during those years. But, the world is now more sophisticated and prepared to march towards a world government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national auto-determination practiced in past centuries.”

-David Rockefeller, Memoirs

Mon, 12/19/2011 - 15:30 | Link to Comment Pancho Villa
Pancho Villa's picture

Japan's debt situation reminds me of an earthquake where huge stresses in the earth keep building up ever so slowly. And you just know that sooner or later something is going to break and there is going to be a massive cataclysm, but you just don't know when.

Japan's financial tsunami will make its nuclear tsunami look like a gentle ocean wave.

Mon, 12/19/2011 - 15:37 | Link to Comment LouisDega
LouisDega's picture

Raymond Burr Biotchezzzzz

Mon, 12/19/2011 - 15:53 | Link to Comment Elmer Fudd
Elmer Fudd's picture

I remember as a kid thinking the Yen was a funny currency because it took so many 0's to price anything.  Then I grow up to see it on parity with the buck.  Nice.

Mon, 12/19/2011 - 20:48 | Link to Comment Stuck on Zero
Stuck on Zero's picture

I'll buy $80 trillion of your debt if you buy $89 trillion of my debt.  The we'll be diversified.

Tue, 12/20/2011 - 03:30 | Link to Comment DrunkenMonkey
DrunkenMonkey's picture

Debt will be extended until nations can no longer pay the interest, just like deadbeat 'consumers'.

Thu, 12/22/2011 - 12:24 | Link to Comment jm
jm's picture

Marked

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