Thoughts and Implications
There is not going to be a huge exodus of Japanese bonds anytime soon. However, the world's largest fund has gone from being a buyer of bonds to a seller of bonds. The amount is not trivial.
82.4 trillion yen in domestic bonds is about 1 trillion in US dollars. That is a lot of pent-up supply, especially when the government is running an annual deficit of of about $240 billion with no external buyers at all.
Those factors put huge pressures long-term upward pressures on interest rates.
Deflation Irony
The irony in this madness is that all the Japanese people want is their money back. They are not looking for appreciation. They do not have absurd pension plan assumptions like the 8% expected returns we see in the US. They do not want stocks, or real estate. They just want cash, and they want it to be worth something.
Yet, the Japanese government was hell-bent for two decades attempting to generate inflation which would have weakened the value of those bonds.
Recently, those bond holdings have been rising with a strengthening yen. However, lingering debt from preposterous deflation fighting efforts of building bridges to nowhere must be paid back.
Horns of a Dilemma
Japan choices are to default on its debt, print money to fund interest on the debt, raise taxes effectively robbing savers of their money, or undertake huge spending cuts.
The dilemma stems from years of Keynesian and Monetarist stupidity.
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