Is Japan, mired in debt and deflation, the next Greece? Even its financial services minister has suggested that Japan Post, the giant bank his ministry oversees, should diversify out of Japanese government bonds. Instead, he suggested it could buy corporate bonds and – of all things – US Treasuries. Those incendiary comments came just as Standard & Poor’s, alarmed at escalating debt levels and sluggish growth, warned that it might lower Japan’s credit rating.
But talk of a massive JGB bubble – let alone default – is farfetched. Certainly, Japan is not in the rudest of fiscal health. The government has spent to keep its economy going. That, combined with falling tax revenues, has pushed the country’s gross debt towards 200 per cent of gross domestic product. With an ageing population, this alarming figure could get worse. So the 10-year JGB yield, at about 1.3 per cent, looks low. What do the markets think they know?