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Bond Vigilantes Fret Over Japan

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http://www.telegraph.co.uk/finance/finance...over-Japan.html

Japans's tax revenues have collapsed by 27pc over the last year, leaving it unclear how the incoming Democrats can pay for their blitz on welfare spending without flooding the debt markets.

The International Monetary Fund already expects Japan's budget deficit to top 10pc of GDP this year and next. Gross public debt will reach 215pc of GDP in 2009, the highest in the world. "Japan faces a very difficult fiscal situation," said the Fund in its latest country report.

Democrat leader Yukio Hatoyama, who won a landslide victory over the weekend, has pledged that there would be no increase in debt to fund his $180bn boost for child allowances and social policy by 2013, but his advisors are already back-tracking as they examine the dire tax figures.

While Japan pulled out of recession in the second quarter, it has barely begun to make up for the 11.7pc contraction of its economy over the preceding year. Industrial production was still down 23pc in July. Exports were down 39pc to the US.

The Great Recession has tipped state finances into a deep crisis. Corporate tax revenues have turned negative as refunds exceed payments from companies facing a collapse in profits.

Japan's finance ministry has been able to count on a huge pool of domestic savings and a captive bond market to fund Keynesian spending projects over the years, but policy-makers fear that the debt market may reach saturation.

Yields on ten year bonds are currently 1.3pc. "Can these benign conditions be expected to continue in the face of even-larger increases in public debt?" said the IMF.

If yields rise to the OECD level of 3pc to 4pc they would cause Japan's debt to spiral out of control. This is no longer a remote possibility. High Frequency Economics says Mr Hatoyama has won the privilege to preside over "the biggest financial meltdown in history."

Japan's $1.5 trillion state pension fund said in April that it would start selling its bonds to cover a $40bn shortfall on its books. Private citizens face the same need. The savings rate has fallen from 14pc to 2pc since 1990. "The IMF said this could put "significant pressure" on bond markets

Japan has become a laboratory for the world's aging crisis. The work-force began contracting in 2005. The country must now rely on diminishing tax revenues to cover a rising burden of pensioners.

Albert Edwards, a Japan veteran at Societe General, said deflation would trump concerns about excess borrowing. "Inflation has crashed back into negative territory, falling 2.2pc in July year-on-year. This will happen to the West eventually," he said.

Wages have been sliding persistently, though disguised by temporary contracts and cuts in bonuses. Cash earnings were down 7.1pc in June year-on-year. While asset prices touched bottom earlier this decade, they have never fully recovered from their peak in 1990. Tokyo land prices are still down by 75pc.

Michael Taylor from Lombard Street Research said Japan made a strategic error during its Lost Decade by waiting too long to pull the monetary levers. "They failed to boost money supply the way the Fed and the Bank of England are trying to do through quantitative easing. Their fiscal packages led to a massive deterioration in public finances."

"IMF studies show that as public debt rises above 60pc of GDP fiscal stimulus loses it effect. People anticipate the consequences: higher taxes, and eventually higher interest rates. The bond vigilantes will always get you in the end," he said.

Could Japan trigger the global collapse?

Japan has never fixed it's debt bubble collapse in the late 80's, it looks like we are fast approaching the end game.

You can't borrow money forever.

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http://www.telegraph.co.uk/finance/finance...over-Japan.html

Could Japan trigger the global collapse?

Japan has never fixed it's debt bubble collapse in the late 80's, it looks like we are fast approaching the end game.

You can't borrow money forever.

Typical incompetent foreigners, they just don't have the inherent British organisational skills and knowledge economy to steer their country through these difficult times.

Edited by Take Me Back To London!

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I really like the Japanese people. It’s a beautiful country too.

Mind you something I've noticed over the last 12-15 years here is how much like the not so nice side of Japan Britain has become. Little or nothing to chose between the policies of the main parties and a say a lot but do nothing government that greases the palms of their friends while the private sector operates a merry-go-round of corruption and nepotism.

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None of this is going to be over until the moneyed give up their gains.

Oh dear, we will be prying it from their cold dead hands.

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