JGB demand continues to look strained in the long run

10 Aug 2012 by Jim Fickett.

Japan's Ministry of Finance published its very informative quarterly newsletter for Q2 in July.

In the short run, there is no shortage of demand for Japanese Government Bonds (JGBs), as evidenced by 10-year yields that are now solidly below 1% (click for larger image):

For the longer term, it is a major problem that the market has been heavily dependent on domestic savers, but the aged and aging population has been cashing in their savings. The quarterly newsletter explains that they have been not only advertising but laying on the guilt:

We continue to issue JGBs for Retail Investors as “Reconstruction Bonds for Retail Investors” …

We explain that funds raised through them are appropriated for reconstruction from the Great East Japan Earthquake, and expect all Japanese people to help for reconstruction through buying JGBs …

Sumo grand champion Hakuho, who is one of the “Reconstruction supporters” made a courtesy call on Finance Minister Azumi on June 7th and advertised JGBs.

And here he is:

So what is the result of all this promotion? The share of JGBs held by retail investors has been falling for three years:

In addition, holdings by pension funds have also been falling, and holdings by the central bank have been rising.

It is hard to know timing, and I would not recommend shorting JGBs. But it is clear that a bad situation continues to get worse, and the danger of a debt crisis in Japan is a very serious one.

(For background, past commentary, and more graphs, see the Reference page Japan government debt.)