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Thursday, July 28, 2011

How Japan is unperturbed despite huge debt?

Amidst the debt crisis in Europe and the USA, some big investors are diverting their funds to Japan, the country, piled under the debt burden, which is around 230% of the Japanese GDP.
Investors’ pumping of funds into Japan has caused the sharp fall in the yields of JGB (Japanese Government Bond) along with the appreciation of Yen.
Despite such a huge debt, Japan has Current Account Surplus against the highly probable deficit; and the credit goes to repatriation of profit achieved abroad by Japanese companies.
But, if economic scenario does not improve in Japan these companies might prefer to reinvest profits instead of repatriating it back to Japan.
Total Japanese household saving is to the tune of $16 trillion while corporate saving is whopping 8% of the Japanese GDP, and this is how Japan offsets the fiscal deficit which is around 10.5% of the national GDP.
With the parked corporate earnings, Japanese institutions manage to hold around 75% of JGB (Japanese Government Bond). Foreign central banks hold meager 55 of the issued JGB’s.
After the debacle of the Tsunami and earthquake, reliance on atomic power has been defied and focus has been shifted towards oil and gas.
Increased oil import shall result in withering of the current account surplus.
To cut a long story short, though today Japan can withstand the financial calamity but the future plight shall be difficult to deal with especially if financial institutions go on JGB selling spree.

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