LDP Plans for ‘X-Day’ Japan Bond Crash It Blames on Kan Spending

So seems they see the fear mongering about the deficit work to get politicians elected in the US and are trying same in Japan.

This kind of near universal ignorance will only make things worse, of course.

The only hope is that somehow an understanding of actual monetary operations takes over but so far no signs of any inroads at the political level or in mainstream economics.

LDP Plans for ‘X-Day’ Japan Bond Crash It Blames on Kan Spending

By Sachiko Sakamaki and Takashi Hirokawa

December 22 (Bloomberg) — Japan’s opposition said Prime Minister Naoto Kan’s spending plans are increasing the risk that the nation’s 858 trillion yen ($10.2 trillion) government debt market, the world’s largest, will collapse.

“We’re approaching a danger zone where bond prices could plunge,” Yoshimasa Hayashi, the Liberal Democratic Party’s shadow finance minister said in a Dec. 20 interview at his office in Tokyo. “It’s very important to be implementing a fiscal rehabilitation plan by 2012,” when baby boomers born after the war will start receiving state pensions, he said.

Surging bond yields would force the government to devote more funds to service debt, undermining Kan’s stimulus efforts. He has pledged to balance the budget by 2020 and pared back the campaign promises that helped his party end the LDP’s half century of almost unbroken rule. Japan’s total debt burden jumped 85 percent during the LDP’s last 10 years in power.

The opposition is working on what it calls the “X-Day” project, to fend off a potential bond market rout, said Hayashi, 49, a former Economy Minister.

“There are many worrisome spending initiatives” in Kan’s budget proposals, such as raising childcare allowances and handouts for farmers, Hayashi said. The government has yet to explain how it will finance a planned 5 percent cut in corporate taxes, which will cost at least 1.5 trillion yen.

Kan aims to freeze annual budget spending at 71 trillion yen for the next three years and cap bond sales at 44 trillion yen in the 12 months starting April 1, the same as this year’s record level.

Risks to Economy

Bank of Japan Governor Masaaki Shirakawa yesterday warned about risks to the economy from rising bond yield. Benchmark 10- year yields rose more than 40 basis points in the past two months to as high as 1.279 percent. The 10-year, 1.2 percent Japanese government bond was recently trading at 1.145.

Japan’s Finance Ministry forecasts long-term debt in the year ending March 31, 2011, will reach 868 trillion yen, about 180 percent of gross domestic product. Household assets rose 0.3 percent in the third quarter to 1,442 trillion yen from a year earlier, according to the Bank of Japan.

The narrowing gap is especially alarming for Japan, where more than 90 percent of public debt is held by domestic investors.

Hayashi said the gap between the two will shrink as an aging population forces the government to spend more on social security and families use up more savings.

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