The 30-member Fiscal System Council, an advisory panel to Finance Minister Taro Aso, has warned that there is “absolutely no guarantee” that domestic investors will keep financing the country’s public debt. The warning comes in a preliminary draft of a report to Aso.

It goes on:

  • “As financial transactions are being globalised, there’s a great deal of freedom for overseas investment, so there is absolutely no guarantee that Japan’s domestic funds will be directed towards JGB purchases
  • “If the government fails to firmly tackle fiscal reforms and produce concrete results, that could lead to loss of market confidence in Japan’s finances and cause a spike in interest rates, possibly offsetting effects of monetary easing,”

The warning supports part of star hedge fund manager Kyle Bass’ thesis on JGBs – that the market is danger of a meltdown (I’ll be back with more on Bass soon).

The full article is worth reading and can be found here at the South China Morning Post.