WHAT do bond investors do when debt crises threaten the euro zone and America? Head for safety in a far more indebted country. Yields on Japanese government bonds (JGBs) fell to an eight-month low on July 19th; the yen strengthened against the euro and the dollar.
That looks very odd. Compared with Italy, the latest target of creditor angst, on many counts Japan is more troubling. Its net debt is bigger as a share of GDP and it has a primary budget deficit (ie, before interest payments), whereas Italy has a surplus. With the fastest-ageing society on Earth its growth prospects are not obviously better than Italy’s, and its government is just as dysfunctional, if not as lurid. Even its free-floating currency is a mixed blessing: the yen has continued to strengthen after the March 11th earthquake and tsunami deepened Japan’s recession.
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