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Capital Markets

The changing face of Japanese borrowing

Government-guaranteed issuers have long been a mainstay of the Japanese bond markets. Now the zaito issuers are seen as a market in their own right. Chris Leahy and Andy Wright report.

JGBs by another name?

Japan is still haunted by its economic past. Although evidence of an economic recovery, however feeble, continues to gather, the future looks far from rosy. Reform of public sector institutions proceeds slowly, demographic problems mount and the cost of paying for Japan's historic errors and funding its uncertain future weighs heavily on the public finances.

Just how far Japan's government can continue issuing debt to finance the country's mired progress is debatable. Most nations with a public sector debt running at 140% of GDP would expect to be suffering crushingly high interest rates, an anaemic currency and to be tackling the demon of stagflation. Yet Japan continues to defy the economic textbooks. Interest rates are almost zero, the yen is appreciating and there is no sign of inflation.

That means Japan can comfortably continue to issue new debt to finance the country's economic growth, and restructure at its own pace.

Not everyone believes this is good news: "One of the reasons government debt is increasing," says Takashi Yoshikawa, CEO of Tokio Marine Financial Solutions, "is the [budget] deficit is increasing every day. Despite the fact that they say they're moving on structural reform, the speed isn't fast enough, so they have to increase debt to cover past borrowings."

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