Salient to Investors:

Takeshi Fujimaki, who has been predicting an eventual default in Japan since at least 2009, said:

  • A fiscal crisis in Japan is inevitable and neither a higher sales tax nor the 2020 Olympics will be able to stop it.
  • Total debt will continue to increase and Japan cannot survive until 2020.
  • Yields on 10-yr Japanese governments may jump to 70 percent based on what happened in Russia when it defaulted in 1998. (The benchmark yield is now the lowest in the world at 0.68 percent.)
  • The yen will drop to as low as 1,000 when Japan faces hyper-inflation in the next 2 years.  Japan just has to make a weak yen, which would eliminate the need for a fiscal stimulus package or any sad arrows.
  • The Olympics will come at the time of a booming economy with 5 or 6 percent 10-year yields.
  • The BOJ is buying huge amounts of JGBs, so market principles in Japan do not work, while monetary easing is creating a JGB bubble – sooner or later the market will reflect credit risk.

Public debt is more than twice Japan’s GDP, the highest ratio globally. Japan will spend more than half of total tax revenue servicing its debt in the fiscal year begun in April, or 24 percent of the government’s budget.

The IMF estimates Japan’s debt will grow to 245 percent of GDP in 2013.

Ryutaro Kono at BNP Paribas said institutional investors in Japan are a captive domestic audience, while the gist of Abenomics is monetization.

Takatoshi Ito at Tokyo University said Japan can avert disaster by raising the tax to at least 20 percent by 2020.

The median economist predicts the yen will end 2013 at 102 and fall to 110 in 2014.

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