JAPAN: Dylan Grice of Societe General Cross Asset Research voices
concern about Japan’s ability to fund its deficits. He argues that aging
Japanese households (now inclined to “dis-save” as they retire) will
have less interest in buying JGBs. And for foreign interest to save the
day, Japanese yields would need to rise further, which would “inevitably
blow up the budget (debt service already 35% of government revenues at
existing yields). “Is it realistic to expect foreign investors to fund a
likely insolvent government at 1.5%?,” Grice asks, pointing to the near
6% yield offered at last week’s Greece debt auction. The government will
have Y213trn ($2.354 trn) in bonds to roll over in fiscal year 2010
(begins April 1). More reason to worry? Grice points to GPIF (government
pension investment fund with sizable JGB holdings) head Takahiro Kawase
who said last summer that with “zero new money to invest”, the firm may
“need to be a seller in the market to meet pension benefits.”