Reference News Network, December 7 report: The UK's Daily Telegraph website published an article titled "Japan's 'Pseudo Thatcher' Is Triggering a $12 Trillion Bond Market Explosion" on December 5. The following is an excerpt:
Japan is heading toward a dangerous edge. This country with the highest debt-to-GDP ratio is provoking the market with the most unreasonable debt-increasing plan.
Since Harumi Maekawa took office six weeks ago, Japanese government bond yields have surged across all maturity periods. Her $13.5 billion "low-quality" fiscal expansion plan has shocked investors, including "clever tricks" such as rice coupons and fossil fuel subsidies. These measures aim to conceal the inflationary consequences of her own policies.
The scale of this populist gamble has not only shaken the international financial system but also left Tokyo's economic establishment in panic.
In Japan's bond market, the benchmark 10-year bond yield surged to 1.94% during intraday trading, a significant increase from 1.79% a week earlier, and is just one step away from the historical high set in 1997. The once vast but relatively slow-growing $12 trillion Japanese public and private debt market now shows shocking trends.
Hayami Koichi, chief researcher at the Economic Department of the Japan Composite Research Institute, pointed out that if the new prime minister does not back down, she faces the risk of a sudden loss of market confidence, similar to that of former British Prime Minister Truss.
Even before the new government made its desperate move, debt servicing costs had skyrocketed. Hayami Koichi said, "All signs indicate that fiscal reckoning is coming."
Given the massive stimulus measures, which will impact an economy that is already fully employed with no idle capacity, the yen should have strengthened. In G7 countries with independent central banks, large-scale fiscal stimulus plans usually push up interest rates, attracting global capital inflows.
However, despite the Bank of Japan eventually hinting that it might take measures to address the 3% core inflation rate, the yen remains weak.
The dollar-yen exchange rate still hovers around an extreme level of 155 yen, with the yen approaching its lowest actual exchange rate in nearly half a century.
Kazuhisa Kimoto, a researcher at Nomura Research Institute, said, "Maekawa should humbly listen to market warnings." Kimoto believes the government is facing the risk of a full-blown sell-off of Japanese assets.
He said, "If the government insists on implementing a pro-cyclical budget, concerns about deteriorating fiscal conditions may escalate into a major crisis, triggering a triple decline in the stock market, bond market, and yen, and possibly leading to capital flight."
Maekawa is Japan's first female prime minister, and she has portrayed herself as "Margaret Thatcher of Asia."
It seems that Maekawa is unaware that Thatcher was a defender of fiscal discipline, even pushing for austerity budgets during the worst economic recession of 1981. Maekawa's "sugar-coated" measures are a great irony of Thatcherism.
We may now have to pay more attention to Japan's debt. Unusually, despite the Federal Reserve's rate cuts and the rapid rise in U.S. unemployment, the yen against the dollar continues to weaken.
Hayami Koichi said that the yen's failure to react to the narrowing U.S.-Japan yield gap is a clear sign that investors have lost confidence in Japan's "fiscal and monetary discipline."
She warned that the Japanese government may be forced to take drastic measures never seen since the late 1940s, such as imposing a wealth tax and freezing bank deposits. She emphasized, "Fiscal consolidation must become the top priority of the nation."
Some say that a 2% yield on 10-year government bonds is a critical turning point. If that is indeed the case, Japan is approaching a tipping point: either Maekawa backs down, or some link will break. (Translated by Zhang Lin)
Original: toutiao.com/article/7581095042048082467/
Statement: This article represents the personal views of the author.