Japan Runs Out Of Capital

What did you think the odds were of seeing this headline when Japan was here buying up Rockefeller Center back in 1990: “In a Shift, Chinese Capital Flows to Japanese Firms.”

In late ’80s and early ’90s the Japanese were here buying large real estate projects such as Rockefeller Center and the Pebble Beach golf course. The way overpaid and by then mid ’90s, many of these projects were bought back. A syndicate comprising, among others, Arnold Palmer and Clint Eastwood, bought Pebble Beach back from the Japanese lender who foreclosed on the property. Mitsubishi bought Rockefeller Center for $1.4 billion in 1989 and lost the property in bankruptcy in the mid-’90s. It is now owned by an American syndicate.

The buzz back then was that the Japanese were taking over the world. They were just better at manufacturing and business than we were and had the money to prove it. We were told to emulate their business style. Paranoid books and movies like “Rising Sun” were grave warnings about Japan’s ascendancy. Then it all went poof. And it has been going poof ever since.

Roughly 20 years of stagnation have been the result of Keynesian stimulus spending by the government. They have almost tapped out the giant Postal Savings system and now need foreign capital to invest in their sovereign bonds. Now we read that Chinese companies are investing in Japanese companies: 

“Japanese companies have long assumed they would not be bought by Chinese companies,” says Takashi Nomura, an attorney specializing in Chinese businesses at Nishimura Asahi, a large Japanese law firm. “Now, receiving capital injections from Chinese companies and seeking their help in penetrating the Chinese market is seen as a viable option.”

With the highest debt-to-GDP ratio in the First World, has xenophobic Japan run out of capital?

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4 comments to Japan Runs Out Of Capital

  • Jason

    No, the deficits supply more ‘capital’ to the economy. A country that can print its own currency will never run out of it. It’s like a football stadium will not run out of tickets.

  • Hans

    Oh my dear beloved land, where the rising sun has been replaced by the rising debt…

    When interest rates finally take their turn, to rise, the pain for the Japanese Empire will become immense…

    After thirty years of the same political governance the rot is now setting in…

  • murty

    ‘the deficits supply more ‘capital’ to the economy’ is absurd. deficits make us beggers, and if we dont close the hole, we will be begging for ever and run out of all the begging options.

    If a country keeps on printing its own currency, none will be interested in it and its currency will keep going down and down.

  • blunderbuss

    As Kyle Bass and others have pointed out, the long-time net buyers of JGBs have now become net sellers, which implies that Japan will have to court the offshore investors that they have shunned for so long… but that means their bonds will have to pay more than they do.

    But increasing the interest rates on those bonds will use up all of their remaining tax revenues. Right now at least 50% of their tax revenues goes towards debt servicing.

    Zimbabwe prints their own currency, too. That doesn’t mean I trade it.