Japan’s Default On The Horizon

Japan's Prime Minister Shinzo Abe attends a news conference at his official residence in Tokyo

Source: Bloomberg – Abe’s Stimulus May Trigger Japan Default, Fujimaki Says

Some have described Japan’s untenable fiscal position as a bug in search of a windshield. Here is another mention of Japan’s possibility of having a default in the not-too-distant future. Similar to what Kyle Bass mentioned about Japan’s impending bond crisis.

Notable Excerpts:

Prime Minister Shinzo Abe’s fiscal and monetary stimulus measures may trigger a collapse of Japan’s economy as early as this year, according to Takeshi Fujimaki, a former adviser to billionaire investor George Soros.

…(Abe) demanded that the Bank of Japan (8301) undertake unlimited cash infusions to end deflation. The premier also unveiled 10.3 trillion yen ($116 billion) in extra spending last week, a step that will add to public debt that’s already more than double the size of the nation’s economy.

Large-scale spending is ridiculous given the amount of debt Japan has accumulated… Abe’s policies would have worked some 10 years ago, but now they will only accelerate an economic collapse.

Fujimaki said in an interview last June that Japan may default on its debt within five years and the yen could weaken to as much as 400-500 per dollar.

The yen’s drop and the government’s spending plan have helped drive the Nikkei 225 Stock Average of domestic shares up 12 percent since the election. A weaker yen makes Japanese-made products more competitive overseas and boosts the value of repatriated earnings.

The nation’s outstanding debt will swell to 245 percent of gross domestic product in 2013, the most in the world and twice the debt-to-GDP ratio for the U.S., according to estimates by the International Monetary Fund.

The government won’t be able to get enough funding if the Japanese withdraw their bank deposits to buy foreign-currency assets in fear of further yen weakness,” said Fujimaki. “Japan’s fiscal collapse could happen even tomorrow.

The yen may weaken beyond 400 per dollar should the BOJ print money to absorb the nation’s debt, according to Fujimaki, describing a process known as monetization.

I prefer to see a crash of Japan’s debt sooner than later because there’s no other way to revive Japan’s economy,” said Fujimaki. “The biggest merit for that is we won’t have to repay debt that we can never repay. Otherwise, young people will have to work like coach horses just to pay tax.


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