Posted by: Matthias Paul Kuhlmey
Here is a good riddle: What two sovereign nations did the IMF just declare can practically be considered “Zombielands,” as their debt burdens have reached levels that cannot even be balanced over the next 5 years? Hola, Spain and Konnichiwa, Japan! Japan, in fact, is one of the most indebted countries on the planet with gross government debt at 230% of GDP. The interesting (or rather bizarre) thing, however, is that the Japanese currency (Yen) has traded at multi-month highs, when compared to the U.S.-Dollar, and Japanese Sovereign Bonds (JGBs) have seen strong demand in global markets; this is not exactly a logical outcome, at least from the perspective of an informed investor.
Japanese authorities are clever people, as they realize the financial game is all about marketing. Due to the dire situation of Japan’s debt, earlier this year the Japanese Government turned to a very popular girl group, AKB48, to help promote the interest in Japanese Government Debt: “AKB48, one of the world’s highest-grossing acts with more than $200M in CD and DVD sales last year, is a phenomenon in Japan and across Asia, with members appearing in commercials for everything from chocolate to mobile phones.” And you really thought finance was boring!?
As we are not suggesting that AKB48 did the trick with investors’ increased interest in JGBs and, consequently, the Japanese Yen, our riddle needs more perspective: It is all a “game of relativity.” The most liquid bond markets in the world are found in the U.S. (39%) and -surprise, surprise- Japan (20%). With a continued need for global finance to “park” liquidity, but also persistent problems in “Euroland,” European Sovereign Debt has been largely avoided.
What have we learned today? First, things are not as they appear (they are actually worse), and, secondly, music really does matter. No, not AKB48, but Alphaville. The (German) synth-pop band, Alphaville, entered the music scene in the 1980s, with their smash hit, “Big in Japan.” “The title comes from the phrase, Big in Japan, which was used to describe Western bands who are popular with Japanese audiences while garnering little attention in their home country.”
One may want to think about the fact that the “value” of Japanese Bonds and the Yen are not here to stay. Sayonara.