{"id":36255,"date":"2013-02-18T11:24:26","date_gmt":"2013-02-18T16:24:26","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=36255"},"modified":"2013-02-18T11:24:26","modified_gmt":"2013-02-18T16:24:26","slug":"japan-is-running-out-of-time","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/02\/18\/japan-is-running-out-of-time\/","title":{"rendered":"Japan is Running Out of Time"},"content":{"rendered":"

By The Sizemore Letter<\/u><\/a> <\/p>\n

Japanese stocks are off to a nice start this year.\u00a0 The iShares MSCI Japan ETF (NYSE:$<\/span>EWJ<\/a>)<\/b>, a popular option among investors for getting access to Japan\u2019s biggest traded companies, is up 4% for the year and 14% over the past month.<\/p>\n

Enjoy it while it lasts.<\/p>\n

Japan\u2019s recent surge is due to its new quantitative easing program\u2014its largest in years\u2014and the stated intentions of Prime Minister Shinzo Abe to weaken the value of the yen and boot Japan out of the deflationary slump it\u2019s been in for the better part of two decades.<\/p>\n

But Abe should be very careful what he wishes for.\u00a0 Deflation is what keeps Japan\u2019s borrowing costs as low as they are.\u00a0 At time of writing, Japan\u2019s 10-year government bonds yield a pitiful 0.75%.\u00a0 According to financial writer John Mauldin, an increase of just 100 basis points in borrowing costs would devour 10% of tax revenues.<\/p>\n

\"Japan<\/a><\/p>\n

Japan 10 Year Government Yield<\/p>\n<\/div>\n

Writing for Bloomberg<\/a>, Gary Shilling notes that debt service now accounts for 43% of Japanese government revenues and quarter of all spending.\u00a0 Furthermore, more than half of all Japanese government spending is financed by new borrowing.\u00a0 \u00a0This means that half of every yen borrowed is used to service existing debts.\u00a0 It\u2019s a debtor\u2019s nightmare that gets worse every year with budget deficits that are consistently higher than 7% of GDP.<\/p>\n

All of this has been made possible by Japan\u2019s seemingly inexhaustible supply of domestic borrowers.\u00a0 But those days are now over.\u00a0 As Japan\u2019s population ages, its savings rate plummets.\u00a0 Once you stop working, you stop saving and you start living off your investments instead.\u00a0 As Japan is the oldest country in the world (and rapidly getting older) its savings rate has shrunk below that of the free-spending United States.<\/p>\n

This means that Japan has two choices going forward.\u00a0 Tap the international bond market and risk the beating that Spain and Italy took last year or finance the government directly via the central bank.\u00a0 Neither of these two scenarios end well.<\/p>\n

How long can this song and dance last?\u00a0 It\u2019s impossible to say, but you\u2019ll know ahead of time that it is coming to an end.\u00a0 Eventually the bond market vigilantes will wake out of their stupor, and then the jig will be up.<\/p>\n

Keep an eye on the Japanese 10-year yield.\u00a0 Thus far, it hasn\u2019t budged much in response to the quantitative easing plans. \u00a0Yields popped from 70 basis points to 84 basis points before drifting back to current levels.<\/p>\n

When the yield approaches 1.5%, get ready for the short opportunity of a lifetime in Japanese assets.\u00a0 Because once Japan loses control of the situation, it will be only a short matter of time before it implodes into a hyperinflationary meltdown.<\/p>\n

This article first appeared on MarketWatch<\/a>.<\/em><\/p>\n

SUBSCRIBE <\/a><\/strong>to Sizemore Insights<\/em>\u00a0via e-mail today.<\/p>\n

The post Japan is Running Out of Time<\/a> appeared first on Sizemore Insights<\/a>.<\/p>\n

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