4 comments on “Former BOJ insider Tetsuya Inoue responds to the question, “Are we nearing a Kyle Bass moment?”
  1. It’s remarkable how little Tetsuya Inoue disagrees with Kyle Bass. The big difference is that Inoue thinks preparation for structural reform (“nemawashi”) is going on behind the scenes, and he hopes / believes the major institutions can hold things together long enough for these reforms to make a difference.

    But even Inoue acknowledges Japan must walk a “delicate and narrow path”. And there’s one serious problem he only mentions indirectly.

    Inoue acknowledges the problem of major economic institutions colluding to muffle the warning signs. (Which would be a remarkable admission in the West!) But he doesn’t state why that’s such a problem. Without a sense of impending economic crisis, nobody’s going to move against vested interests, and the structural reforms won’t happen.

  2. A “Kyle Bass moment”?!? Are you serious? I thought the “widowmaker” trade died a while ago (for good reason). Has anything Kyle predicted about Japan over the many years ever come true?

    I’d ask Kyle: How can Japan collapse or default from its fiscal debt when its obligations are basically all in yen….and Japan is the one who issues all that yen!

  3. Quick response to Geoff Botting:

    50% of taxes are now spent on servicing debt, and that figure continues to grow as the government continues to run a huge deficit. If you think that’s sustainable, I’ll leave you to your dream world.

    As you say, the government can always print more yen, but in real terms, those newly printed yen will be worth a fraction of what creditors are expecting to receive. In other words, Mrs. Watanabe is going to be very unhappy when prices go up, and she sees just how little her pension can buy her.

    Simple math and demographics tell us that a lot of people are going to be a lot poorer than they expect.

    Kyle Bass is just sketching out a few of the details.

    ++++++++++++++++

    Sorry, that should have been 25% of taxes, not 50%. And apologies for any offence I caused with my “dream world” remark.

    Many thanks to Richard Solomon for pointing out the error before allowing the comment to be published.

    • As for the payments to service the debt, who gets the money? When the moneys goes into the private sector, it’s recorded as income, when it goes to the public sector, it becomes revenue. Among the biggest holders of JGBs are the pension fund and bank and post office savings, so a lot of the payments end up…back in the hands of Japanese citizens, many of them retirees who will spend it in Japan. The money doesn’t really exit the system.
      As for the yen becoming devalued….well, it hasn’t, even after 14 years of QE and ballooning debt. Compare the merchandise sold in a “100 yen shop” 15 years ago to now. Your 100 yen actually buys a lot more now than ever. In fact, the yen remains the one of the hardest, most stable currencies in the world.
      I agree people are going to be poorer, but that’s true of all the developed countries. The era of high growth is over for us. But that’s due to globalization, not BOJ policy.

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