If Japan's economy starts to implode with all the social unrest that follows, expect to see the shift to militarism and nationalism to increase.Dallas hedge-fund manager Bass, principal of Hayman Capital Management LP, said an unavoidable apocalypse for Japanese government bonds will hit in 18 months, maybe sooner. The Land of the Rising Sun is sinking in debt that’s 25 times its revenue.
“This is what the Keynesian endpoint looks like,” Bass said, referring to the point when a government can no longer prop up its waning economy with further stimulus because it already owes too much.
“Japan sailed deep into the zone of insolvency years ago.” Deaths outnumbered births last year. Japan’s general xenophobia and downright dislike of Chinese and Koreans will keep immigration from coming to the rescue, he said.
More adult diapers were sold in Japan than kid diapers, Bass said, clicking on a big-screen photo of Japanese models wearing disposable underwear. “They’re actually having adult-diaper fashion shows.”
Just as Americans once thought home prices would never go down, the Japanese public still believes government bonds are sacrosanct, Bass said. “For the last 20 years, their real estate market is down 80 percent. Their stock market is down 80 percent. The only thing that the Japanese people have ever bought that they’ve never lost money in is their government bonds. They hold this to be an axiom in Japan.”
When this proves utterly false, Bass said, mass psychological depression and social unrest could follow.
Buying put options on Japanese government bonds makes plenty of sense to Bass.
“We’re about to have a front-row seat to a total collapse of a developed nation,” he said. “Maybe the silver lining to this is that it will empower our politicians to make corrective choices instead of kick-the-can-down-the-road ones.”
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Abe’s campaign will be based on stirring up right-wing nationalism. After taking over the leadership, he provocatively visited the controversial Yasukuni Shrine to Japan’s war dead last month. This week he not only met with the Dalai Lama but publicly supported “freedom and democracy” for Tibet. Both moves were designed to antagonise China and demonstrate a tough stance on foreign policy.
As the country’s economic crisis has worsened, the Japanese political establishment as a whole has made a marked turn to nationalism and militarism. Earlier this year, Tokyo Governor Shintaro Ishihara deliberately inflamed tensions with China by proposing to buy the disputed Senkaku/Diaoyu islands from their private Japanese owner. Not to be outdone, Prime Minister Noda “nationalised” the rocky islets in September, provoking widespread anti-Japanese protests in China. Following his election as LDP leader, Abe joined in, promising to “protect Japan’s land and sea … no matter what.”
The whipping up of nationalist sentiment serves both to justify a military build-up by Japan and to divert public attention from the country’s deepening social and economic crisis. The widening social divide is indicated by the rising numbers of people forced to rely on the country’s limited welfare system—now more than 2 million, up from 1.07 million in 2000.
