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I look at value and contrarian ideas as well as emerging technologies/growth stocks worldwide, both on the long and short side. I also like to discuss the influence of monetary policy on stock markets. I usually do not engage in short-term trading and myopic analysis (quarter by quarter,... More
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  • About That Quadrillion Yen Problem (Japanese Debt Revisited) 2 comments
    Sep 27, 2013 6:50 AM | about stocks: GLD, EWJ

    Seems I'm not the only one worried about the Japanese debt. Time to revisit the topic after I wrote about it in the context of gold prices in terms of fiat money. Here are some even more alarming quotes from a former Soros advisor...

    The International Monetary Fund estimates Japan's debt will grow to 245 percent of GDP this year. The nation will spend 22.2 trillion yen servicing its debt in the fiscal year begun in April, accounting for more than half of total tax revenue and occupying about 24 percent of the government's budget, according to Finance Ministry estimates in January.

    ...

    "We will not be able to avoid a crisis with a consumption tax increase, but it is our responsibility as politicians to raise it," according to Fujimaki, who says the levy needs to be 35 percent to 40 percent. "Corporate tax should be cut so Japanese companies can be competitive globally. We need to make our best effort to improve the economy to delay this coming crisis."

    ...

    "If the yen goes up to 120 per dollar, Mr. Abe doesn't need a third arrow," according to Fujimaki, who expects the currency to drop to as low as 1,000 when Japan faces hyper-inflation in the next two years. "Japan just has to make a weak yen: there would be no need for a fiscal stimulus package or any sad arrows."

    Bloomberg

    I wouldn't go that far on the USDJPY, but fully agree on the general malaise. Once and if the Japanese debt bubble pops, it will have global implications.

    A timeframe for the pop is hard to give (especially since so much debt is held in the country by Japanese institutions and citizens, there is almost no foreign pressure), but I think it will be before the Olympics in 2020.

    PS: The quoted Mr. Fujimaki warned about this problem for years (so did I. by the way, beating the drum since 2009/2010...):

    http://www.bbc.co.uk/news/business-14399978

    Themes: Japan, debt, gold, monetary policy Stocks: GLD, EWJ
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  • Tales From The Future
    , contributor
    Comments (4125) | Send Message
     
    Author’s reply » And some people (still) say it's not a problem as long as Kuroda works his magic...

     

    http://bloom.bg/14bwxq6

     

    Doubt it over time.

     

    I wonder who will continue to hold the JGBs at below 1% once inflation is rising - even if only modestly.
    27 Sep 2013, 07:03 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (4125) | Send Message
     
    Author’s reply » Looking at my old bookmarks I would like to give credit to Mr. Katsenelson who described this alarming development in a PDF presentation back in early 2010:

     

    http://bit.ly/1drEvkC

     

    Also see his later article from July 2010:

     

    Japan: Land of the Rising Debt

     

    http://bit.ly/1drEtt1

     

    Unfortunately, four years later, "Abenomics" is doing the easy "kicking the can down the road" (money flooding by the BoJ since late 2012) and more public spending (a prime example is the likely very expensive Tokyo 2020 Olympic bid and other infrastructure of questionable) while structural reforms (aka the third arrow in Abenomics) won't move ahead due to political obstruction (the LDP like all political parties likes its honeypots).

     

    Meanwhile, Japan's current account deficit keeps growing, also because of growing energy imports due to the nuclear shutdown:

     

    http://bit.ly/1j4PYsk

     

    This unfortunately is a no win situation and I doubt large segments of the Japanese population are aware how dire the outlook is in terms of debt/GDP on day X when interest rates can no longer be held down...
    14 Jan, 01:11 AM Reply Like
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