Yields Rise as Igarashi Says Japan’s Debt at Limit
The biggest quarterly jump in Japanese government bond yields since 2008 may prompt policy makers to seek more foreign buyers for the nation’s debt.
“Japanese government debt is nearing its limit, and we need to find more places to sell government bonds, including overseas,” Vice Finance Minister Fumihiko Igarashi said in an interview in his office in Tokyo yesterday. Benchmark 10- year bond yields surged 18 basis points, or 0.18 percentage point, in the final three months of 2010, the most since the second quarter of 2008, according to data compiled by Bloomberg.
Japan hasn’t so far had to rely on investors abroad, and is fortified by the world’s second-largest foreign-exchange reserves, at $1.04 trillion. Domestic buyers hold 94.5 percent of the 909 trillion yen ($11 trillion) of public debt, Bank of Japan data show.
Prime Minister Naoto Kan, forecast to see his 44.3 trillion yen cap on bond sales busted next year, called for national debate this month about raising the sales tax to bolster revenue and shrink the budget deficit. At stake: avoiding a Greek or Irish-type collapse in confidence in the nation’s bonds that would, according to Igarashi, usher in a “global depression.”
‘Look Overseas’
“The view on the debt has been changed after the European debt crisis -- whether right or not, investors may start to wonder if Japan is lined up to be next,” said Toru Suehiro, a market analyst at Mizuho Securities Co. in Tokyo. “Japan’s shrinking population will force the nation to look overseas to buy JGBs as their purchasing power won’t last forever. Japan may have to consider selling debt denominated in foreign currencies.”
Yields on benchmark 10-year bonds were at 1.235 percent at 12:11 p.m. in Tokyo, compared with a seven-year low of 0.82 percent in October.
The government will have a revenue shortfall of 51.8 trillion yen in the fiscal year starting April 2013, a gap that will swell to 54.2 trillion yen in the following year, according to estimates the Finance ministry distributed to lawmakers.
New Japanese bond sales will need to expand to 46.7 trillion yen in the year starting April 2012 because of declining revenue, surpassing Kan’s target of 44.3 trillion yen, according to calculations by the Cabinet Office released last week.
Debt Burden
Japan’s debt burden is forecast to reach 210 percent of gross domestic product in 2012, the highest among countries tracked by the Organization for Economic Cooperation and Development.
Household financial assets minus long-term debt is 200 trillion yen, a surplus that supports demand for the nation’s debt, said Hidenori Suezawa, a Tokyo-based chief strategist at Nikko Cordial Securities Inc. That gap shrank 40 trillion in the past two years, and could be gone in roughly five years if the economy and government finances deteriorate, he said.
Igarashi, 62, said Japan’s higher interest rates may reflect the “brighter Japanese economic outlook,” driven by strengthening economies abroad.
Finance Minister Yoshihiko Noda said today that he expects the economy to begin improving as “bright signs” emerge in production. Noda made the comments in remarks to ministry officials in Tokyo.
Faster Inflation
China’s growth accelerated to 9.8 percent in the fourth quarter, while data due Jan. 28 are expected to show the U.S. economy expanded at a 3.5 percent annual rate in the fourth quarter from 2.6 percent. The U.S. and China together account for more than a third of Japan’s overseas sales.
The Bank of Japan yesterday raised its growth forecasts for the year through March to 3.3 percent from 2.1 percent, as it kept the key interest rate between zero and 0.1 percent and a program to buy securities at 5 trillion yen.
“The magnitude of the increases in Japan’s bond yields have been relatively small compared with other nations,” in part because of the BOJ’s pledge to maintain its zero-rate policy until it beats deflation, BOJ Governor Masaaki Shirakawa said.
‘Global Depression’
The central bank also forecast that consumer prices will increase 0.3 percent in fiscal year 2011, higher than its October prediction of 0.1 percent. Japanese CPI figures to be released on Jan. 28 will show that core consumer prices dropped 0.5 percent, according to the median forecast of 26 economists surveyed by Bloomberg News.
The BOJ said yesterday that inflation may unexpectedly accelerate if demand from emerging economies pushes up commodity costs.
Japan, Asia’s second-biggest wheat importer, may increase prices for flour millers by the most since 2008 as weather problems from Australia to North America curb supply, Nobuyuki Chino, president of Unipac Grain Ltd., said last week. Companies such as Japan’s largest flour miller Nisshin Seifun Group Inc. and Yamazaki Baking Co. raised bread and noodle rates when the government increased prices in 2008.
Igarashi said the government needs to come up with a plan to fix its finances to avoid a sharp increase in interest rates.
“Japan is different from Greece or Ireland,” he said. “If Japan becomes like them, there will be a global depression.”
To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net Kyoko Shimodoi in Tokyo at kshimodoi@bloomberg.net
To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net
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