Why long term selling of JPY is going to happen. Dont get caught buying the YEN, be busy buying aud, cad, chf, gbp, eur, usd, nzd crosses at appropriate spots. Doesnt mean there wont be some periods where the JPY wont rise it is just stronger the JPY will go down. Note this sentence:
In terms of debt capacity, the net assets of Japanese households reach 1,156 trillion yen, while the national debt is 1,133 trillion yen. The difference is around 23 trillion yen.
People are concerned about the US debt problem. However, Japan's debt issue is not optimistic either. Current American debt-to-GDP ratio is about 102 percent, but the same ratio for Japan is 228 percent. If we call US debt a problem, Japanese debt is indeed a much bigger nightmare. Financial markets are not stupid, the trick is that majority of US debt is in overseas hands because US dollar-denominated assets have a special position as reserve assets. Though Japan's debt-to-GDP ratio is double that of the US, the international impact of Japan's debt problem was not under the spotlight as Japanese national debt is traditionally held by Japanese investors. Yet, as mentioned above, things are changing. With a greater amount of Japan's debt in international hands, Japan's debt problem will become an international issue sooner or later.
Another point worth mentioning is that under the new administration of Prime Minister Shinzo Abe, the Bank of Japan will start another round of assets buyback with a target of 10 trillion yen. This means the Japanese government will inject more liquidity into the market, making a new QE round. When the Bank of Japan goes for another round of QE, it will buy more bonds. With a buyer on hand, the Japanese government can issue more bonds with low interest rates. The excess liquidity will push interest rates lower and financial markets worldwide will definitely be affected.
In terms of debt capacity, the net assets of Japanese households reach 1,156 trillion yen, while the national debt is 1,133 trillion yen. The difference is around 23 trillion yen. The increase in assets buyback already hits 10 trillion yen, which means there is not much domestic capacity left for absorbing any newly-issued debt. In other words, if the Japanese government continues with its current economic policies and has no way out in economic development, it has to go to foreign lenders for funds. Worst still, it is doubtful if the Japanese government can issue debt at such interest rates. With the worsening debt-to-GDP ratio and an unreasonable debt level, new lenders are likely to ask for a fair risk premium for the lending. |
