A Google search very quickly turned up an article by William Pesek Jr. from the International Herald Tribune which states that "roughly 96 percent of Japan's government securities are held domestically, enabling officials to avoid capital flight even as they sell mountains of debt." This is a very important factor to consider when reviewing the data and commentary that Edward and Claus have provided in recent posts here. Given that most Japanese government debt is held domestically, will ratings downgrades have any meaningful effect on the valuation and ownership of this debt? I tend to think not.
Another question that comes to mind is where the cash for the increased purchases of US Treasuries by Japanese is coming from. Presumably from the proceeds of recent trade surpluses with the US, as Japan's sovereign debt hasn't been decreasing. However, given that there seem to be few viable domestic investments available to Japanese investors, purchases of US debts aren't surprising.
Unlike Edward, I tend to agree with Richard Katz's assertion that ""Behind this inordinate export reliance is a recovery strategy that suppressed wages and consumer spending. Falling real wages raised corporate profits and helped finance the resolution of non-performing loans." I would note that this strategy is nothing really new. Japan's economic policy has alwas been to keep the greater part of the proceeds from its economic growth since the beginning of the post-war rise out of the hands of the labor force and re-invest them into its export sector. That is why the Japanese populace has a standard of living considerably lower than the citizens of other industrialized nations. Whether the resolution of Japan's banking crisis was assisted by some adjustment of this general policy is beyond me at the moment, but if the case would not be surprising to me.
However, I agree with Edward that analysis of Japan's situation based on life-cycle consumption theory and productivity theory are a necessity and the conclusions we assert here at Japan Economy Watch that Japan is very close to hitting the proverbial wall based on the results of such analysis are really undeniable. I welcomed Edward's quote from the Fitch official that "Japan needs to make difficult decisions about its budget, said James McCormack, head of Asia sovereign ratings for Fitch, following the resignation of Prime Minister Shinzo Abe. ``The government has to raise taxes and cut spending, and it is difficult for a weak government to do either,'' McCormack said, speaking by phone from Beijing. ``The timing of Abe's resignation is odd, although the actual resignation is not.'' I would just say that it is pretty much difficult for any government to raise taxes and cut spending. However, given my first point, the Japanese public have been issuing IOU's to themselves, presenting the tax hike/spending cut as a way to pay themselves might possibly motivate the voters to approve such a policy. But it seems unlikely...
Japan Real Time Charts and Data
Edward Hugh is only able to update this blog from time to time, but he does run a lively Twitter account with plenty of Japan related comment. He also maintains a collection of constantly updated Japan data charts with short updates on a Storify dedicated page Is Japan Once More Back in Deflation?
