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To: patron_anejo_por_favor who wrote (151969)	2/18/2002 7:49:34 PM
From: Petrol	Read Replies (2) \| Respond to of 436258

The danger of a triple sell-off dailynews.yahoo.com EDITORIAL Monday, February 18, 2002 The danger of a triple sell-off Financial markets continue to send warning signals about Japan's economy. The most worrying is the possibility of a "triple fall" in shares, securities and yen rates. Investors here and abroad, increasingly nervous about the risk of holding Japanese assets, are selling off their holdings. The indications are that investor confidence in the Japanese economy is dropping to a dangerous level. Investors seem concerned particularly about the falling price of government bonds. In fact, the growing selling pressure on these securities is pushing up their yields, a benchmark for long-term interest rates. The rise in the cost of money, unless held in check, will worsen the recession. Government bonds are among the most creditworthy of securities. Therefore, sell-offs of government bonds can have more serious consequences than sell-offs of shares. Indeed, the growing moves to dump national securities suggests that investors are increasingly worried about a looming crisis in the bond market. Diminishing investor confidence, which is reflected in falling credit ratings, mirrors in part a growing lack of market receptivity for government debt instruments. For instance, in the spring of 2001, banks across the nation held 80 trillion yen in these securities, but in the next six months the amount dropped below 70 trillion yen. This indicates that massive bond holdings are proving a drag on banks' efforts to return to profitability. So far, the government has continued to issue huge quantities of bonds each year. Contributing to this tendency is the notion that the gargantuan reservoir of personal savings, amounting to 1.4 quadrillion yen, or at least twice the total amount of public debt (estimated to reach 700 trillion yen in March 2003), leaves plenty of room for the market to absorb new bonds. But the household sector also holds debts totaling close to 400 trillion yen. In addition, the corporate sector owes an estimated 1.4 quadrillion yen, a sum almost equal to the total value of financial assets held by individuals. In terms of a national economy, someone's assets are always someone else's liabilities. Therefore, looking only at the asset side of the equation is failing to see the forest for the trees. Beyond that, it is becoming increasingly difficult for the private sector to absorb bond issues. The latest boom in gold sales illustrates that people are turning their backs on securities investments. Yet the government, already the most heavily indebted of the major industrialized nations, is set to issue at least 30 trillion yen worth of bonds annually. Share prices are sensitive to economic trends. So the stock market will likely rebound significantly if, for example, the gloom over the financial system is lifted through government-assisted bank recapitalization. But bond prices are not as responsive to economic recovery. Even if the economy picks up or returns to positive growth, the public debt burden will continue to rise unless the deficit is reduced substantially through drastic spending cuts and tax increases. For now, people are probably concerned more about immediate developments in the stock market than about the danger of a triple sell-off. Still, that danger cannot be lightly dismissed. And the worst part of that scenario would be a crash in the government bond market. The government currently pays out 17 trillion yen a year in debt service -- annual interest and principal payments on outstanding bonds. That is an enormous sum, although current superlow interest rates are a boon to borrowing. Still, the interest burden remains a heavy drag on public finance. To hold down interest payments, the government has been replacing traditional long-term bonds with securities with shorter maturities of 10 to five years. On average, bonds are now redeemable in about five years. An increase in short-term debts translates into an increase in rescheduling bonds. These refinanced securities as well as new issues are said to be entering the market at a rate of 100 trillion yen a year. Already the government bond market is coming close to saturation. The market could crash if banks and other institutional investors rush to release their holdings. To avert panic, the Bank of Japan may be obliged to underwrite bonds on a continuing basis. That is the worst-case scenario, which must be avoided at all costs. It is not a case of "crying wolf." The danger of a triple sell-off is real. It may erupt into a serious crisis unless appropriate action is taken without delay. For today's Japan, self-complacency is probably the worst enemy within. The Japan Times: Feb. 18, 2002