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?

Wednesday, November 04, 2009

A scenario for Japan’s public finances

A few days back there were rumblings of dissatisfaction from the market about Ministry of Finance projected issuance:

Japan’s Bonds Drop a 4th Day After 20-Year Auction Demand Cools – Bloomberg.com

It’s possible that the new government will have to limit its borrowing for “stimulus” spending, as the demand for additional JGB’s is limited.

It seems to me the scenario would work like this:

Ministry of Finance has to raise rates to sell enough debt

Yen spikes short term due to the interest rate differential, crushing exports more

Increased rates mean the increased interest cost can’t be covered by new issuance

BoJ prints yen to cover debt burden; yen collapses as the market flees rapidly devaluing currency

My theory about yen movement is based on the idea that a rise in rates would attract money to Japan short term, but that over time the size of the government debt burden and the higher interest payments would require yen printing.

I could be completely off base.

This just hit Bloomberg: Japan’s Bond Futures Fall as Fujii Signals Debt Supply to Rise – Bloomberg.com

“Japanese bonds fell after Finance Minister Hirohisa Fujii said the government will likely use debt sales to meet a tax revenue shortfall, raising concern increased supply will overwhelm demand.”