Japanese government bond market: "We are not a Bangladesh"

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Japanese government bond market: "We are not a Bangladesh"

The Japanese government bond market is laughably old-fashioned and inefficient. Settlement, for example, takes place only on dates ending in five or zero - a practice derived from the 19th-century rice market. At last, the Ministry of Finance is looking at wide-ranging reforms. With combined new bond issues for FY1995 and 1996 expected to reach almost ¥100 trillion, it has little choice. Andrew Horvat reports.

Early last month a masked man wearing a lamé cloak and a silver turban, decorated with half-moons and stars, sat down outside the Japanese Ministry of Finance (MoF). He announced that he would set himself on fire to protest the use of ¥685 billion ($6.5 billion) in taxpayers' money to bail out insolvent housing loan corporations (jusen).


The man's bizarre suicide threat is just the most dramatic example of the widespread protests in Japan - including a protracted sit-in by opposition MPs in parliament - over the government's rescue of the jusen.


But such protests miss the bigger picture: Japan's public finances are in general disarray. The one-off bail-out of the jusen represents only a tiny part of the problem. Far more worrying is the total size of Japan's growing public debt. The government will spend ¥16.4 trillion in 1996 alone to service this debt. Because of falling tax revenues and a politically motivated tax cut in 1994, the proportion of revenues raised through bond issues will leap from 17.7% in fiscal year 1995 (ending March 31 1996) to 28% in FY1996.


Economists see disaster looming in the Japanese government bond (JGB) market unless new sources of tax revenue are found.




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