Credit default swaps are signaling a potential drop in the Japanese yen as investors become increasingly concerned about Japan’s ability to fund its liabilities.
This is of particular concern since the rest of the world, including the U.S., has generally experienced an increase in market confidence.
Bloomberg: The price of hedging against losses on $10 million of the country’s bonds with credit-default swaps soared this month to as much as $76,160 a year from $37,000 in August, as the new government planned record spending and borrowing even with tax revenue falling. The rise in debt protection costs contrasts with that of the U.S., where prices have fallen to about the lowest in a year amid unprecedented issuance. The difference in prices reached the widest ever on Nov. 9 after Japan’s debt grew to almost twice the size of the economy.
If Japan is struggling while the world rebounds, we’d hate to see what happens here if the world economy hits a pothole.