Japan is sitting on a debt time bomb and recent moves to push the central bank to target inflation have made it more likely the bomb will explode in the next 24 months.

Quote of the Day Jan. 21, 2013 - 06:55AM JST ( 15 )

Kyle Bass, founder of Hayman Capital Management (CNBC)

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15 Comments

2

OkinawamikeJan. 21, 2013 - 08:33AM JST

Meaning what?

Should we pull all savings out of the banking system now?
1

OkinawamikeJan. 21, 2013 - 08:46AM JST

The full report: http://www.cnbc.com/id/100391704
1

Peter PayneJan. 21, 2013 - 09:17AM JST

Be sure and read the comments below that link too, a lot of people are calling B.S.
0

oikawaJan. 21, 2013 - 09:37AM JST

I don't know, this guy is one of very few who got it right on the sub-prime mortgage situation and the Greek and Euro problem. There aren't that many real comments under the article, there's some spam and the same guy posting a few times who seems to think Japan can't have problems because it's a sovereign currency. I don't know, but keeping savings in a few different currencies could be a good idea.
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JeffLeeJan. 21, 2013 - 11:27AM JST

This guy has lost a ton of investors' money thanks to his short Japan position. They call him and the other debt doomsaying hedge-fund managers "widowmakers," for very good reason.

Basically, every prediction he has made about Japan -- that it would implode in the same way as Greece -- has been wrong.

this guy is one of very few who got it right on the sub-prime mortgage situation

Hedge fund managers spend their careers taking all sorts of positions in all sorts of areas. You only hear about it on the occasions when a bet works out. Like at a casino: at any given time, someone is winning, while others are losing. Doesn't mean the winners are smart and the losers stupid: it's about probability and luck. If fact, Kyle has been losing on Japan...big time and consistently.
1

kiboushaJan. 21, 2013 - 11:28AM JST

http://www.businessinsider.com/japan-is-never-going-to-default-2012-5

Sounds like he's betting on Japan defaulting, so he could cash in big. Never bad to be cautious.
0

japan_cynicJan. 21, 2013 - 01:14PM JST

Of course the Japanese financial situation is grim in the long-term. But it has been for as long as I remember. Doesn't mean a crash is coming any time soon, even if logically it should.
-2

GWJan. 21, 2013 - 02:16PM JST

Seriously how could J-debt NOT be a time bomb, Japan is killing itself is so many different ways, debt is only one, albiet a big one!
0

TravelingSalesJan. 21, 2013 - 04:48PM JST

This is obviously true, but the other issue is that the earlier we set off the bomb, the smaller (relatively) it will be.

This was going to come to a head anyhow as the current account moves to deficit. If you have a current account deficit you have to have a capital account surplus which means that they would have to try to persuade some foreigners to buy Japanese financial assets, including JGBs. At the moment 97% of those belong to Japanese because everyone else thinks the prices are crazy.

To defend yourselves, take your money out of cash and into hard assets like real estate or commodities. Borrow as much as you can for as long as you can at a fixed rate. When the government bails itself out through inflation it will do so at the expense of all net yen savers but to the benefit of all those who are in the same position as the government - borrowers.
1

semperfiJan. 21, 2013 - 05:03PM JST

If the J Gov't and J Bank did nothing, then, THAT would be a time bomb imploding .. So what choice does Japan have ? ! ?
2

TravelingSalesJan. 21, 2013 - 05:20PM JST

I think there is some misunderstanding here when people talk about default. Japan will not default. No country in the history of fiat currencies has ever defaulted on obligations owed on its own fiat currency (excluding governments effectively destroyed in a war). To do so would be insane as it would destroy the financial basis of the economy.

Japan will pick some or all of the non-default options - inflation, increased income, wealth and/or inheritance tax (already happening, compulsory (legally or socially) savings schemes, asking for public contributions, etc. - to move private assets into government so that every JGB, pensions obligation, Post Office deposit and so on will be fully paid when due.

Greece is completely different as the Euro is not under control of the Greek government.
0

badsey3Jan. 21, 2013 - 11:57PM JST

Greece is completely different as the Euro is not under control of the Greek government.

What makes Greece different than the US Dollar owned by the private Federal Reserve? =What happened in Greece will eventually happen again in Japan and the USA.

The only place where this cannot happen is a country like Turkey (where it did happen) and people went physical gold/silver. =Eventually every fiat currency crashes/defaults. Iceland went private fiat = got rid of the IMF and the financial terrorists.

WWII and most of these "wars" are to indebt the populace and get them under the global fiat system. -This also means getting them off the gold/silver standard (past USA).
0

badsey3Jan. 22, 2013 - 12:12AM JST

To defend yourselves, take your money out of cash and into hard assets like real estate or commodities. Borrow as much as you can for as long as you can at a fixed rate. When the government bails itself out through inflation it will do so at the expense of all net yen savers but to the benefit of all those who are in the same position as the government - borrowers.

In high-inflation, real estate is good because the replacement cost for the home is going up. -->However that can take years and initially people that need money will sell the extra real-estate they have -dropping prices. =You may need enough money to cover for a few years. Look at the US housing market -right now the interest rates are low and the banks are finally unloading many of the foreclosed homes (this started in 2008 =that is 4+ years and the home prices are still down, and if the interest rates go up the home prices will go down again because the home loans cost more).

Going physical: Long-term physical gold/silver or really anything that is not fiat. If you have a physical hobby you really enjoy that can be an excellent investment (hard with Japanese having less space).
1

SensatoJan. 22, 2013 - 08:29AM JST

The "debt time bomb" that Bass is talking about here refers to the prospect of interest rates (Japanese Government Bond yields) increasing to the point where the cost of servicing the nation's debt increases above tax revenues. Right now somewhere along the lines of 50% of Japan's tax revenues goes toward servicing the debt, with 25% of tax revenues needed to cover interest payments.

This scenario could emerge if there is a bond market "shock", potentially occurring if a BOJ strategy to increase inflation/weaken the yen through monetary easing (ie. issuing more JGBs) resulted in a drop in JGB prices and a corresponding rise in JGB yields (interest rates). If the 10 year JGB yield were to rise significantly (say maybe to 2% as opposed to 0.735% now), the nation could find its finances underwater, in an inescapable debt trap spiral.

The most significant sudden spike in interest rates since the 1990 market crash occurred in 1998-1999, with the JGB 10yr yield going from 0.80% on October 8, 1998 to a peak of 2.515% on February 5, 1999. The increase was largely fueled by what is known as the "Trust Fund Bureau Shock (Shikin Unyobu Shock)" of December 1998.
-1

JeffLeeJan. 22, 2013 - 08:30AM JST

TravelingSales is absolutely correct.