<html> <head><style type ="text/css">body { font-family: "Bloomberg Prop Unicode I", Verdana, sans-serif; font-size:125%; letter-spacing: -0.3pt; color: #FF9F0F; background-color: #000000; text-align: left; } p {line-height: 1.25em; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" );} h1, h2, h3 { text-align: left; font-weight: normal; color: #FFFFFF; } h1 { font-size: 130%; } h2 { font-size: 115%; } h3 { font-size: 100%; } #bb-style { font-size: 90%; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" ); } b, strong { font-weight: bold; } i, em { color: #FEC54A; } pre { font-family: "Andale Mono", "Monaco", "Lucida Console"; letter-spacing: -0.3pt; line-height: 1.25em; } table { border: 0; font-size: 90%; width: 100%; margin-left: auto; margin-right: auto; } td, tr { text-align: left; } td.numeric { text-align: right; } a:link { color:#53B2F5; text-decoration: none; } a:visited {color:#53B2F5} a:active {color:#53B2F5} a:hover {color:#53B2F5} </style> </head> <body> <p>By William Pesek</p> <p>Investor <a href="http://jimrogers-investments.blogspot.com/">Jim Rogers</a> has a very specific reason for not buying Japanese government bonds: extinction.</p> <p>The Singapore-based chairman of Rogers Holdings can't fathom how a $5.5 trillion economy can, in the long run, avoid defaulting on a roughly $12 trillion debt with a shrinking population. A few years back, he concluded: "If the current birth rate, which is the lowest in the major developed countries, continues, there will be no Japanese. Who will pay the enormous debt?"</p> <p>It's a valid question, especially as the nation's deflationary funk, a product of the 1990 bursting of its economic bubble, deepens. More and more, markets are buzzing about the chances of Japan becoming the next Greece.</p> <p>That's unlikely because about 95 percent of government debt is held domestically. While this factoid is <a href="http://www.bloomberg.com/news/2011-06-12/is-biggest-short-sale-hiding-in-plain-sight-william-pesek.html">well known</a>, one particular possibility it affords Japan isn't: debt forgiveness on a national, and indeed unprecedented, scale.</p> <p>Yes, if things unraveled the way the bears expect, Japan could always appeal to nationalist tendencies for survival. Is that an unlikely event? Yes. A tough sell? Absolutely. But my sense is that if Japan were facing the kind of financial Armageddon some fear, such a step isn't beyond the realm of possibility.</p> <p>Greece is having trouble getting foreigners to take a haircut on its bonds. Japan might have more success getting its masses to take losses on the piles of public debt stashed under the tatami mats. For all its problems -- weak growth, deflation, ugly demographics, political paralysis -- Japanese are still sitting on about $15 trillion of household savings. That steady demand for bonds is why 10-year yields are just 0.94 percent.</p> <p>One of the most moving sights I've ever seen was the gold donations in South Korea in 1998, just after the nation received a humiliating multibillion-dollar bailout from the International Monetary Fund. The "Collect Gold for the Love of Korea" <a href="http://news.bbc.co.uk/2/hi/world/analysis/47496.stm">campaign</a> saw millions voluntarily turn over the family jewels to the government to help the economy. The bears should remember that if Japan does fall off a proverbial cliff, the nation enjoys the ultimate financial backstop: 126 million people who want Japan to survive.</p> <p>(William Pesek is a Bloomberg View columnist. <a href="https://twitter.com/#!/WilliamPesek">Follow</a> him on Twitter.)</p> <p>For more quick commentary from Bloomberg View, go to <a href="http://www.bloomberg.com/view/the-ticker/">the Ticker</a>.</p> <p> </p> </body> </html>