Who would save Japan in a sovereign debt crisis? Ideally, it wont have one. But given the countrys terrifying challenges, some senior Japanese financial executives and government bureaucrats are quietly considering a doomsday situation. In a theoretical credit collapse, even China could come to the rescue.
True, Japan looks incredibly unlikely to default on its debt. Ten-year government bond yields of around 1.1 percent reflect not an iota of concern among investors. And as one of the worlds great creditor nations, Japan has vast resources, hard-working people and, if need be, a central bank that could fire up printing presses.
But the numbers are frightening, especially given Japans lack of political leadership around fiscal issues. Government debt stands at about 1,000 trillion yen ($12 trillion), with gross borrowings of around 200 percent of gross domestic product. The productive means to pay off those liabilities are shrinking as Japans average age creeps toward 50. Thanks to scant immigration, the country also loses one million people a year.
Japan can finance itself for now; 95 percent of government debt is held domestically. But the combination of aging workers, a lack of new household formation and bank deposit growth, and corporations opting to deploy cash overseas have some economists predicting that, without drastic reforms, Japan may soon need to look abroad for financing.
That could lead to a crisis. If non-Japanese creditors demanded higher yields to compensate for low growth, the countrys dependence on short-term borrowing would quickly lead to spiraling debt service costs. Even a 5 percent haircut on government debt would equate to $600 billion.
Few have pockets that deep. Europes resources are tapped out on its problems. America is struggling, and would be even more so if Japan dumped the almost $1 trillion in United States Treasuries that it holds. The only sizable pool of capital available would probably be Chinese.
China might be willing to help out. But the money could also come with strings. Sovereignty over disputed oil-rich islands is one possibility. Some theorize China may demand independence for Okinawa, home to controversial American military bases. Perhaps thats the best reason for Japan to get its house in order: a Chinese rescue might be as uncomfortable as the debt crisis itself.
http://www.nytimes.com/2011/05/27/business/27views.html?ref=china
Bolded > LOL
True, Japan looks incredibly unlikely to default on its debt. Ten-year government bond yields of around 1.1 percent reflect not an iota of concern among investors. And as one of the worlds great creditor nations, Japan has vast resources, hard-working people and, if need be, a central bank that could fire up printing presses.
But the numbers are frightening, especially given Japans lack of political leadership around fiscal issues. Government debt stands at about 1,000 trillion yen ($12 trillion), with gross borrowings of around 200 percent of gross domestic product. The productive means to pay off those liabilities are shrinking as Japans average age creeps toward 50. Thanks to scant immigration, the country also loses one million people a year.
Japan can finance itself for now; 95 percent of government debt is held domestically. But the combination of aging workers, a lack of new household formation and bank deposit growth, and corporations opting to deploy cash overseas have some economists predicting that, without drastic reforms, Japan may soon need to look abroad for financing.
That could lead to a crisis. If non-Japanese creditors demanded higher yields to compensate for low growth, the countrys dependence on short-term borrowing would quickly lead to spiraling debt service costs. Even a 5 percent haircut on government debt would equate to $600 billion.
Few have pockets that deep. Europes resources are tapped out on its problems. America is struggling, and would be even more so if Japan dumped the almost $1 trillion in United States Treasuries that it holds. The only sizable pool of capital available would probably be Chinese.
China might be willing to help out. But the money could also come with strings. Sovereignty over disputed oil-rich islands is one possibility. Some theorize China may demand independence for Okinawa, home to controversial American military bases. Perhaps thats the best reason for Japan to get its house in order: a Chinese rescue might be as uncomfortable as the debt crisis itself.
http://www.nytimes.com/2011/05/27/business/27views.html?ref=china
Bolded > LOL
