Video: A Bleak Long-Term Economic Picture for Japan?

Predicting the Land of the Rising Sun's future is a complex undertaking, and many a financier has had both their belt and suspenders handed to them from betting on Japan's economic implosion.

I'll admit up front that I don't have a ready prediction that X will happen by Y date. But here are some of the macro elements to keep in mind:

1. Japan is a major surplus country, meaning it produces and sells much more than it consumes. Much of the savings the country generates, which have to go somewhere, have been invested at home in Japanese Government Bonds (JGBs) and abroad in U.S. dollar denominated assets. Alongside China, Japan is the second largest holder of U.S. treasury debt with as almost $1 trillion in holdings.

2. While Japan has a breathtaking 200%+ public debt/GDP ratio (the highest in the developed world), 94% of that debt is Japanese owned. What this means, basically, is that so long as the Japanese keep buying JGBs then Japan's fiscal future is in its own hands. In contrast, the U.S. depends on foreigners to finance a large portion of its federal deficit. The thrifty Japanese save enough to finance their Keynesian stimulus policies all by themselves and still have plenty left over to spot Uncle Sam!

Now, the Japanese savings rate has been steadily declining to what would seem an unsustainable level in terms of maintaining the current fiscal course.

Continue reading the full article published on SeekingAlpha here.