China sells off Japanese debt

Interesting and unusual headline.

China doesn’t care about exports to Japan and may be ‘helping them’ by selling some of its yen reserves?

They may know Japan is going to get serious about keeping the yen weaker with direct intervention so China is front running them?

China sells off Japanese debt

By Michiyo Nakamoto

October 8 (FT) — China sold a record Y2,000bn ($24.3bn) in short-term Japanese bills in August, suggesting that their hefty buying earlier this year was not aimed at diversification into the yen as some had speculated. Chinese investors had bought a net Y2,300bn in Japanese bills and bonds between January and July. Chinese investors were slight net buyers of medium- to long-term Japanese bonds in August, to the tune of Y10.3bn. Coupled with their record net selling of short-term bills, Chinese investors’ total net buying of Japanese bills and bonds so far in 2010 fell to Y297.6bn. That is still slightly above the annual record for Chinese net buying of Japanese debt, of Y255.7bn, recorded in 2005.

Japan


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Karim writes:

There is a piece typifying the logic behind the buying of high strike payers in Japan (Japanese govt debt ‘Ponzi Scheme’).

Also heard GS put a similar piece out today but have not seen.

Makes no sense but seems to be gathering steam.

Right, the sustainability issue with floating FX is the issue of the sustainability of low inflation.

The ‘risk’ is that ‘excessive’ deficit spending adds inflationary demand, weakens the currency, etc. however the article seems to reject that argument as it suggests quantitative easing will continue due to weakness of demand, etc.

Nor are the ‘sustainability remedies’ applicable to floating FX. Any ‘stress’ is taken out by the exchange rate, and the way things generally work ‘excessive’ deficits increase nominal gdp/inflation and tend to stabilize debt/gdp ratios when that point of ‘excessiveness’ is reached.

As always, it’s about inflation, not solvency.
Govt spending is in no case inherently revenue constrained.
Any such constraints are necessarily self imposed.

This is all not to say this type of rhetoric can not trigger portfolio shifts and trading plays that can substantially move markets while they last.

In fact, that’s often what bubbles are.

Decline in Government Debt Sustainability
An extended period of heavy fiscal deficits will reduce the sustainability of government debt, which is already in the danger zone. The general-government debt was equivalent to 196% of GDP at the end of FY2008 (156% for long-term debt) and we project a rise to 222% (181%) for end-FY2010. This escalation is in part the consequence of low nominal GDP growth — we forecast an average -1.4% for 2009-10—and the average JGB yield is almost continuously above the nominal growth rate. The sustainability remedies are a deep cut in the debt ratio through sales and liquidation of government assets, combined with a demographic boost for the potential growth rate from measures to boost the birthrate and encourage immigration.


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Updated JGBi Index Ratio Table

(an interoffice email)

Hi Dave,

If core inflation is finally showing up in Japan that says a lot for world inflation in general!

warren

On Dec 28, 2007 8:12 AM, Dave Vealey wrote:
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> With last nights stronger then expected release of core inflation in Japan
> (+0.4% y/y vs. +0.3% expected), January will see linkers pickup another 0.10
> in their index ratio. Prior to last nights release the index ratio was
> expected to be unchanged for the month of Jan.
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> DV
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