Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/92787
Authors: 
Horioka, Charles Yuji
Nomoto, Takaaki
Terada-Hagiwara, Akiko
Year of Publication: 
2013
Series/Report no.: 
ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 888
Abstract: 
In this paper, we present data on trends over time in government debt financing in Japan since 2010 with emphasis on the importance of foreign holders and speculate about the determinants of those trends. We find that Japanese government securities were held primarily by domestic holders until recently because robust domestic saving (combined with strong home bias) made it possible for domestic investors to absorb most of the government debt but that foreign holdings of Japanese government securities have increased sharply in recent years, especially in the case of short-term government securities. We show that trends in foreign holdings of Japanese government securities can be explained by conventional economic factors such returns and risks and that the recent surge in foreign holdings of short-term Japanese government securities is attributable to foreign investors in search of a safe haven for their funds in the face of the Global Financial Crisis of 2008-09 precipitated by the Lehman crisis. Our analysis suggests that the surge in foreign holdings of Japanese government securities will subside (in fact, it already has), and this, combined with the projected decline in domestic saving (especially household saving) caused by population aging, will make it necessary for Japan to get its fiscal house in order. Thus, Japan's massive government debt has not wreaked havoc in the past because of robust domestic saving and a temporary inflow of foreign capital caused by the Global Financial Crisis, but it may wreak havoc in the future as both of these factors become less applicable unless the government debt can be brought under control.
Subjects: 
government debt
government securities
government bonds
government bills
government notes
sovereign debt
debt securities
debt financing
government debt financing
debt holdings
government debt holdings
foreign debt
foreign debt holdings
foreign debt investments
foreign investors
capital flows
international capital flows
short-term capital movements
cross-border portfolio investments
safe haven
capital flight
flight to safety
debt rollover
home bias
sovereign debt crisis
eurozone crisis
eurozone
Japan
JEL: 
E21
F32
F34
G15
H63
O53
Document Type: 
Working Paper

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