It is widely acknowledged that Japan faces significant social and economic issues of the sort which can lead to a debilitating financial crisis. Worsening demographic and fiscal trends are both well established as evidence in the case that pessimists make of an impending collapse in both the government debt market and the value of the yen. The optimists point to the same body of evidence and weakly conclude that Japan still has another five years before any potential crisis becomes acute.
Based on our analysis, we are firmly in the pessimists’ camp—Japan does not have another five years before things worsen considerably. Fundamental macroeconomic factors are now converging in a manner heretofore unseen and threaten Japan’s ability to self-fund. As international investors assume a larger funding role, Japanese sovereign yields will equilibrate at rates notably higher than major distressed sovereigns in Europe and the debt burden will substantially increase.
Please review our Japan Economic Outlook in which we analyze the key opportunities and risks for Japan: Iron Harbor Open Market – Japan