One of the oldest, most popular bets — that the Japanese government would collapse under the weight of its debt — has a fresh round of adherents who believe that this time it’s going to work out.
Among them: Hayman Capital manager Kyle Bass, who made a fortune shorting subprime.
He tells the Journal a Japanese bond market collapse is merely a matter of when, not if.
Again though, this bet has been made for a long time, and bond yields have only gotten lower, while the Yen has only gotten stronger.
What’s different this time? Ostensibly it’s about demographics. Japan’s debt is self-financed by famously aggressive Japanese savers.
Some predict that as Japan ages, more people retire and savings rates dip, some purchasers will start pulling back on buying or even turn into sellers. Japan’s public pension fund, the world’s largest, has said it could become a net seller of holdings in 2010. About three-quarters of the fund’s holdings have been in Japanese bonds.
“The biggest buyer is now a seller. That’s the biggest difference today,” said Mr. Bass of Hayman Advisors. To attract buyers, particularly from overseas, yields will have to rise significantly, the bears assert, making it painful for Japan to service its debt.
Indeed there’s some evidence of this happening. Japan recently opened its bond market wider to foreign participants, suggesting the unlimited well of domestic demand for debt may be reaching its end.
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