A Japanese government panel warns there is “absolutely no guarantee” that domestic investors will keep financing the country’s massive public debt, citing the risk of a spike in bond yields that could crimp long-term growth prospects, draft report seen by Reuters shows.
The warning from the advisory panel to Finance Minister Taro Aso comes at a critical time - when the government bond market has seen volatile price falls, underscoring a delicate balancing act for Prime Minister Shinzo Abe’s government.
Abe has unleashed huge fiscal and monetary stimulus to spur short-term growth, sending stock prices soaring. But at the same time, he is trying to convince investors that over the longer term Japan will tackle a public debt that, at more than twice the nation’s annual economic output, is the biggest in the developed world.
Whether Japan can begin to get its fiscal house in order will be key to determining if the early boost to confidence from so-called “Abenomics” can translate into balanced and sustainable growth for the world’s third-biggest economy.
The surge in Tokyo share prices in recent months has been heavily influenced by foreign investors betting Abe can break with 15 years of deflation and tepid growth.
By contrast, JGBs - more than 90 per cent-owned by Japanese investors - were until recently little changed by the government’s stimulus plans and massive quantitative easing from the Bank of Japan.