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The Economist Magazine

Buttonwood: Apocalypse, not now

Although japanese bonds have the lowest borrowing rate in the world, their moment of reckoning may not be far away. This is because 2.4 trillion dollars worth of bonds are coming due in the near future. That amount accounts for 45% of the country’s GDP. The reason Japan has been able to hide their weaknesses in their financial sector is because they show their debt-to-GDP ratio based on gross figures produced by the governments assets. 

Investors still feel comfort financing more debt for the government because of the measures that Japan has been able to manipulate the way ratings agencies measure. Japan also keeps a majority of their financing national. They have very few foreign lenders. Sooner or later the day will come when Japan has to pay up and the fear of defaulting will be a very real possibility. Historically, countries that had high debt covered by the government usually defaulted. 

These financial issues didn’t occur over night, rather they have been building up over the past 20 or so years. The question is not so much emphasized by the what will happen, rather the when it will happen. It will be a good idea to see how investors react to this.