This is a continuation of the article “Japan’s debt crisis comes after Europe buy some long term OTM yen puts”
Surprisingly honest, Japanese Ministry of Finance official admits that “Japan is fiscally worse than Greece“. Bloomberg is reporting that, at a conference in Tokyo, Yasushi Kinoshita said “Japan’s 2011 fiscal deficit was up to 10% of GDP and its debt-to-GDP has soared to over 230%”. It seems that Kinoshita is worried that there is a big risk of shocks even with large amount of JGBs that are held domestically. I completely agree with him as stated in my analysis.
And now a former top Japanese currency official: “The Bank of Japan is locked into purchasing more government bonds and may contribute to a loosening of fiscal discipline in the world’s largest public debt market”. “Since they have come this far, if the BOJ stops purchasing bonds, there will be a fall in bond prices and huge valuation losses for banks.” said Makoto Utsumi, former vice finance minister for international affairs and now president of Japan Credit Rating Agency Ltd.
BOJ last month increased bond purchases through its asset fund by 10 trillion yen ($123 billion) to $374 billion QE as part of measures to counter deflation and spur growth. That means that BOJ will monetize most of the deficit that Japan has. Don’t underestimate the significance of such program, the Japan’s economy is much smaller than the USA one.