Title: When Will Japan's Debt Crisis Implode?
Headings: When Will Japan's Debt Crisis Implode?
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Content: Deflation (decreasing prices of goods and services) that occurs for long periods of time make government debt and other low yielding assets much more attractive. For example, if the price of goods drops by 1% while government bond yields 1%, then the overall return would be 2%. Japanese investors are currently satisfied with these returns, but the country has to increase national savings so that domestic purchasers continue to buy new government debt. Yet Japan’s population is shrinking and aging, so it’s highly doubtful that the country can increase national savings to a point where purchasing government bonds is sustainable. And because Japan is a net importer of goods, the only way to reduce debt is by having foreign investors. It is difficult for Japan to grow its GDP partly because of its aging population. ( Photo by Tomohiro ... [+]
Ohsumi/Getty Images)
Who will cover the cost? So far, this strategy has been successful. The world today is in an odd place, as many developed markets have all-time low interest rates. Investors are playing safe by trying to reduce losses on fixed income assets.