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The giant Ponzi scheme (and economic 'Black Rodan') continues/builds.
This math disaster has been known for years, but Japan has not only Not imploded, the Yen has rallied this year.
Japan is an impossible debt/demographic situation, but somehow the world allows it/it's currency/bonds to be a world currency mainstay, even haven, like the dollar.
(slightly longer excerpt needed due to subscription/invisibility issue)
The Endgame For Japan's Pyramid Scheme? - Barron's
As the yen heads to 100 against the dollar, economists are fretting over Japan’s $10 trillion debt monster.
By William Pesek - April 13, 2016 - Barron's
This math disaster has been known for years, but Japan has not only Not imploded, the Yen has rallied this year.
Japan is an impossible debt/demographic situation, but somehow the world allows it/it's currency/bonds to be a world currency mainstay, even haven, like the dollar.
(slightly longer excerpt needed due to subscription/invisibility issue)
The Endgame For Japan's Pyramid Scheme? - Barron's
As the yen heads to 100 against the dollar, economists are fretting over Japan’s $10 trillion debt monster.
By William Pesek - April 13, 2016 - Barron's
Time to short the yen again? It’s tempting to wonder as none other than Mr. Yen, a.k.a. Eisuke Sakakibara, says the Japanese currency will strengthen to 100 by year-end.
A one-time Ministry of Finance big shot, Sakakibara has long been a walking, talking (too much, actually) contrarian indicator. One quick example: During a panel I moderated in May 2010, I asked Sakakibara if the Bank of Japan might raise interest rates within 5 years. He laughed out loud, flailed his arms in the air and dismissed the idea as “just stupid!” His conclusion: “Of course the BOJ will be raising rates by then! Everyone knows that!”
Not so much. Six years on, the BOJ is pushing rates further into Negative territory - and under great pressure to keep going. The yen Prime Minister Shinzo Abe has been working to devalue for more than three years is skyrocketing - up 10% so far this year. That spells doom not just for Toyota’s profit and the broader Nikkei, but Abenomics.
But what about Japan’s bond market? This, too, is an every-knows-that topic. Japan’s $10 trillion debt monster has long been the world’s most obvious, most Dangerous and least understood asset bubble. How can a rigid economy with a Shrinking population, negligible growth, miniscule immigration, flat wages, dismal productivity and waning competitiveness ever pay off its debt? It can’t without huge reforms, as everyone who’s ever studied economics knows.
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Japan Inc. defied the laws of financial gravity by creating a Pyramid scheme. In the decades following World War II, it became customary to pile savings into JGBs.
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The question is whether that sense of loyalty is breaking down, particularly with the BOJ pushing rates negative. Japan, for example, is experiencing a bull market in demand for 10,000 yen bills and household safes as consumers wonder about bank solvency, as they did back in Sakakibara’s MOF days. The BOJ is printing an extra 180 million of highest-denomination bills this fiscal year, a sign that negative rates are backfiring spectacularly.
This loyalty question worries Blanchard, too. That might force Japan to tap foreign investors to pick up the slack as domestic ones age or lose trust in the BOJ. “To our surprise, Japanese retirees have been willing to hold government debt at zero rates, but the marginal investor will soon not be a Japanese retiree...
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Japan would do all it can to avoid that scenario. Tokyo holds two trump cards that peers lack. One, roughly 90% of JGBs are in domestic hands, reducing capital-flight risks. Two, an Armageddon put option: domestic debt forgiveness on a massive scale.
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It makes you wonder how the BOJ could ever taper, like the Federal Reserve, never mind find an exit strategy. Nothing is more important to Tokyo in the long run than preserving calm in the world’s frothiest bond market. As such, Kuroda is just as stuck in Tokyo’s pyramid scheme as anyone.
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