Title: When Will Japan's Debt Crisis Implode?
Headings: When Will Japan's Debt Crisis Implode?
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Content: That means for now, Japanese government bonds don’t seem that bad. The second highest levels of Japanese debt are held by the U.S. The upside of this is to reclaim financial leverage and have some autonomy over Japan (the largest holder of U.S. debt), while optimizing the exchange rate between the Yen and Dollar. Another important reason to hold Japanese debt is to weaken the Chinese stronghold that is casting its shadow over Yen-denominated debt. To ensure that Japan’s interest payments and spending obligations will not be defaulted, the government has to make sure foreigners are buying its debt. Nowadays, buyers should be supporting debt auctions. But in the future, continual reduction of interest rates and satisfying foreign investors can raise debt servicing costs to unreachable levels. Therefore, the only option to gain more foreign investors is to have higher yielding debt options. From the graph below, you can see that Asia is buying more Japanese debt. This is mainly because China is diversifying, by exposing more into Japan while relying less on Europe and the U.S.
Foreign Investor Bond Holdings by Region
One Road Research
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Alternatively, Japan can increase economic growth to outpace its growing debt burden. But for this method to work, it has to enhance industries that provide the highest tax incomes.