Japan's Debt Crisis

JAPAN'S DEBT CRISIS Japan has a very high debt burden that it may not be able to repay. As such, it is at risk of a currency crisis. Debt as a Percentage of GDP (6) 230 -- U.S.A. Japan -Germany -- France Canada 210 U.K Italy 190 170 Japan has the highest debt level relative to its economic output of any country in the world. 150 130 110 90 70 50 30 00 01 02 04 05 07 09 10 11 12 Japan's Fuel ImporES 6,000 Japan's nuclear reactors shut down in March of 2011 after the Fukushima event. This forced the country 5,000 4,000 3,000 to increase its energy imports significantly. 2,000 1,000 Oct-10 Dec-10 Feb-11 Jun-11 Oct-11 Dec-11 Balance of Trade Deficit (in billions of JPY) 10007 r1000 500- The increase in energy imports led to Japan becoming a net importer rather than a net exporter. 500 0- F0 -500- E-500 -1000 – E-1000 -1500- Jul/10 Jan/11 Jul/11 --1500 Jan/12 Jul/12 SOURCE: www.TRADINGECONOMICS.COM | MINISTRY OF FINANCE JAPAN Importing Widens Deficit, Adds to Debt Trillion yen) 120 100 1026 Total Expenditures 390 39.3 The importing ofenergy requires greater deficit spending to pay for it -- which in 92.3 80 414 318 788 785 73.9 751 4 $4.7 60 4 541 turn adds more debt. Tax Revenues 40 20 1975 1976 1977 19 199 1980 IP1 192 1983 1984 1985 16 1987 19S 199 1990 1991 1992 1993 1994 1995 1996 I997 IP9 I999 2000 2001 2002 2003 2004 Source: Japan Ministry of Finance Japan Has an Aging Population IMen Women 1950 2005 2050, forecast 1.2 0.8 0.4 0 0.4 0.8 1.2 1.2 0.8 0.4 0 0.4 0.8 1.2 Age 1.2 0.8 0.4 0 0.4 0.8 1.2 Age Age 100 Japan's aging population means its workforce will likely decline -- thus making the trade deficit difficult to reverse. 100 100 80 80 80 60 Total: 95m 60 60 Total: 128m 40 40 40 20 Total: 83m 20 20 Source: National Institute of Population and Social Security Research Japan's Low Interest Rates Won't Attract Foreign Capital Low interest rates mean investors don't 6. earn much income for holding yen. 2 Japan Overnight Interest Rate (%) Has the Move Out of the Yen Begun? Is the only way for Japan to get out of debt to print yen? The yen has been steadily declining since May of 2012 Pattern of higher lows Is this the wing low? SOURCES OECD Economic Outlook NO. 90 TradingEconomics.com SoberLook.com INFORMEDTRADES.COM Ministry of Finance, Japan (mof.go.jp) housingjapan.com economist.com/blogs/dailychart/2010/11/japans_population Our mission statement is to help traders learn. Apr-11 Aug-11 Feb-12 S8 nr 98-any 18-das Oct-88 68-AON Dec-90 - -Z6-uer -E6-gə4 Mar-94 Apr-95 May-96 Jun-97 86-|nr |66-8ny 00-das LO-20 Nov-02 Dec-03 Jan-05 Feb-06 Mar-07 Apr-08 - 60-Aew OI-unf Jul-11