Because Japan’s enormous public debt is largely held by its own citizens, the country doesn’t have to worry about foreign investors losing confidence.
If there’s going to be a run on government debt, it will have to be the result of its own citizens not wanting to fund it anymore. And since many Japanese fund the government via accounts held at the Japan Post Bank — which in turn buys government debt — that institution would be the conduit for a shift to occur.
And that’s what may be happening.
According to FT, a financial services minister urged just that.
Something’s odd though, because for one thing you wouldn’t expect anyone in government to urge a major funding institution to move away from government debt. And his reasoning sounds weird, too, so we’re not exactly sure what’s going on.
“Nearly 80 per cent of Japan Post Bank’s funds go towards buying JGBs, but from now on [any increase in deposits] could go towards buying corporate bonds . . . and US Treasuries,” said [Shizuka] Kamei, who is also in charge of postal reform.
His comments come amid growing fears about the risks of sovereign debt after governments around the world have borrowed record sums to support ailing economies in the wake of the financial crisis.
“The US is having difficulty due to a lack of funds. It’s only natural that we should support the US when it is weakened so Japan Post Bank’s funds may go towards that,” said Mr Kamei.
If anyone has any insight into Mr. Kamei’s thinking, we’d be eager to hear it.
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