“Japan’s swelling bond sales risk pushing the world’s most indebted nation to a “trigger” point where capital inflows reverse and bond yields rise, former Deputy Bank of Japan Governor Toshiro Muto said.
“It’s common sense that huge bond issuances aren’t sustainable,” Muto, 68, who served as the BOJ’s deputy chief for five years until March 2008, said in an interview in Tokyo yesterday. “I don’t know how much time we have,” he said, noting that he doesn’t see the nation reaching the tipping point in the near future.
Prime Minister Yoshihiko Noda is struggling to double the sales tax to rein in debt expected to reach 1 quadrillion yen ($13 trillion) next year just as policy makers in Europe work to contain their fiscal crisis. Standard & Poor’s this week maintained a negative outlook on Japan’s sovereign rating and warned a downgrade is likely if growth prospects weaken.
“I have no doubt that a rating cut will take place” if the government can’t raise the 5 percent sales tax, said Muto, who also worked at the Finance Ministry for 37 years and is currently chairman of the Daiwa Institute of Research. “I don’t think the cut will cause a market rout, but we have to keep in mind the unwinding of capital inflows may happen” if Japan repeatedly fails to get its finances in order, he said….”
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