Japan PM Warns of Default if Debt Not Fixed

Discussion in 'Wall St. News' started by S2007S, Jun 11, 2010.

  1. S2007S


    News keeps pouring in of how this massive debt crisis continues to overtake everything in it's path. It can only be ignored for so long.

    US News

    Japan PM Warns of Default if Debt Not Fixed
    Reuters | June 11, 2010 | 03:10 AM EDT
    New Japanese Prime Minister Naoto Kan, seeking to lay the groundwork for a future sales tax rise, warned on Friday that the country risked defaulting on its borrowing if it failed to rein in its massive public debt.

    Kan, who took over the nation's top job after his unpopular predecessor quit abruptly last week, has made tackling a public debt that is already twice the size of Japan's GDP a top priority amid market concerns about sovereign debt risk.

    "We cannot sustain public finance that overly relies on issuing bonds," Kan told parliament in his first policy speech. "As we can see in the euro zone confusion that started from Greece, there is a risk of default if the growing public debt is neglected and if trust is lost in the bond market."

    Kan spoke hours after his banking minister Shizuka Kamei — an advocate of big spending, said he would quit the cabinet, improving the chances Kan can forge ahead with fiscal reform.

    The departure of the outspoken Kamei, sparked by a spat over a controversial bill to roll back postal privatization, removes one obstacle, but how aggressively Kan can implement fiscal reforms will depend on the results of an upper house election, likely on July 11.

    Support for the Democrats, who must win the July vote, has jumped since Kan took over, and Kamei's resignation could be another plus, analysts said.

    "It was a bit unusual for somebody from such a tiny political party to have this much importance, and with him gone the Kan administration is likely to strengthen its foundation going into the election," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Morgan Stanley Securities. "This could perhaps even lead to Kamei's party leaving the coalition — and while this might seem like political instability to some foreign investors, this will really allow Kan's government a chance to stabilize."

    PNP Secretary-General Shozaburo Jimi, an upper house lawmaker, was expected to be given the portfolio, since Kamei's small People's New Party (PNP) remains in the ruling coalition.

    Fiscal Reform Plan, Growth Strategy

    National Strategy Minister Satoshi Arai told reporters the government was aiming to compile a medium- and long-term plan for reining in debt by June 22 at the latest, and that he wanted to base the program on capping government bond issuance at 44.3 trillion yen ($484.6 billion) in the year to March 31, 2012.

    Kan, Japan's fifth premier in three years, has called for a bipartisan debate on raising Japan's 5 percent sales tax to help fund bulging social welfare costs in an ageing society, while Kamei has been cautious about such a move.

    Fiscal reformers in the Democratic Party want an election manifesto due out soon to include a reference to increasing the tax after the next general election, due by late 2013.

    Rating agencies have warned they could cut Japan's sovereign debt rating unless Tokyo crafts a credible plan to rein in debt.

    But analysts say the Democrats, who swept to power promising to put more cash in consumers' hands to boost domestic demand, would need to abandon some election pledges to slash spending.

    Kan also needs to twin his fiscal plans with a formula for engineering growth after decades of stagnation, experts say.

    "Ideally, the plan should be grounded in a broader economic policy framework including pro-growth structural reforms and clarity on the monetary policy objective," Andrew Colquhoun, director at ratings agency Fitch's sovereigns ratings team, said in an email.

    Election Prospects

    Kamei, known for attacks on free-market capitalism and pressing the Bank of Japan to do more to fight deflation, formed the PNP in 2005 with other rebels from the then-ruling Liberal Democratic Party to protest plans to privatize Japan Post.

    He resigned after the Democrats rejected his call to extend the current session of parliament, set to end on June 16, to enact a bill that would roll back those privatization plans.

    Democrats want the upper house poll soon to capitalize on a big leap in voter support after Kan took over, and extending the session would have pushed back the upper house vote.

    Analysts still question whether the Democrats can win an outright majority in the 242-seat upper house.

    But the party's chances have clearly improved since Kan took over from indecisive Yukio Hatoyama, who quit with his ratings in tatters just nine months after the Democrats swept to power.

    "My sense is that Kamei leaving will probably increase public support for Kan, because it looks as though he isn't going to be pushed around by Kamei," said Columbia University professor Gerald Curtis.

    "I wouldn't put any money on it, but I think there is a chance of a majority," Curtis added. "It all depends on how effective Kan is as prime minister."
  2. Good timing after the recent YEN strength in recent weeks and months...
  3. TGregg


    Japan's debt is really scary. It's huge but darn near all of it is held by the population. By the aging population, aging meaning they are about to stop saving and start spending as they retire. Rumor has it that some of the pension fund guys have talked to some of the government debt guys and said "Hey dudes, we're not going to be buying a lot more of these things in the future. As a matter of fact, we're going to start (slowly) unwinding our positions."
  4. achilles28


  5. What's the root cause for all these countries overspending and over indebtinging themselves?
    Is it entitlements? Buying votes? Campaign finance ownership by corporations?

    This needs to be stopped and corected. It's insanity. It's a common trend now.
  6. That's the myth... In reality, it's not that simple. I give you:

    Fact 1: Japan had been and still is running a large trade surplus.
    Fact 2: Yes, household saving rate has been declining since the 90s, for all the obvious reasons, but the corp saving rate has gone up enough to make up for it.
    Fact 3: In percentage terms, the ratio of JGB holdings to total household assets for the Japanese is actually lower than the holdings of USTs by their American counterparts.
    And, most importantly,
    Fact 4: Japanese chicks dig guys who own JGBs!!!! :)
  7. TGregg


    Size matters and everybody knows what chicks like. . . BIG BONDS. . . :)
  8. It's GREED, pure and simple.

    1. By deficit spending, they goose the economy to make it look like "things are rosy"... and the spending part actually is... you just have to ignore the debt part. Deficit appears to be "something for nothing"... for a while... until the debt comes home to roost.

    2. By distributing entitlements, support for incumbents is engendered. If taxpayers had to cough up higher taxes for entitlements, they'd bitch. So, politicians overspend via deficits.. the effects are not immediate so more easily swallowed at the time.

    It's all political greed. :mad:
  9. Retief


    So what is USD/JPY going to do? Stay in the 90's, go back above 100 or decline towards 50?
  10. Long-term? I'd go for a weaker JPY, given the issues the Japanese economy is facing...
    #10     Jun 11, 2010