TOKYO - Japan is not on its way to becoming the next Greece, but the country's finance ministry is looking at extending the average maturity of its debt to reduce future refunding risks, a senior ministry official said.
Greece's debt woes have highlighted fiscal problems in Japan and some market players worry Japan could face growing difficulty in borrowing as its debt, the highest among industrialised countries, is soaring. Its public debt is about 200 percent of GDP, far above Greece's 120 percent.
The cost of insuring Japanese debt against default for five years hit a one-year high above 90 basis points last week as worries about public debt engulfed global financial markets.
But Masaaki Kaizuka, director of debt management for the ministry, shrugged off the comparison with Greece, saying Japan's debt is mostly domestically financed based on huge savings in the corporate sector and by households.
"Japan's problems are different in terms of the quality of its debt. It is not logical to think Japan could be the next Greece," he told a seminar.
But Kaizuka also said the government may extend the average maturity of its debt - now seven and a half years - as much as possible during the current fiscal year to March.
"I guess the Greek debt crisis has brought home to authorities the need to reduce the country's refunding needs," said Hidenori Suezawa, chief strategist at Nikko Cordial Securities.
"The government will gradually increase sales of 30-year and 40-year bonds, which seem to have met with good demand for now," he said.
Super-long bonds
The ministry is due to issue 144.3 trillion yen (S$2.2 trillion) in JGBs to institutional investors through regular
auctions this fiscal year, a 5 percent rise from last fiscal year's issuance.
Of that total, only 1.2 trillion yen is earmarked for 40-year bonds and 4.8 trillion yen for 30-year bonds. Analysts believe long-term investors such as pension funds and life insurers may want to buy more of those super-long bonds.
The government bond market showed muted response to Kaizuka's comments, traders said. Current 30-year government bonds were untraded on Wednesday.
Kaizuka said the ministry was forced to rely more on short-term debt last year because of successive government
stimulus measures. But this fiscal year it is putting more emphasis on the super-long sector.
"We will be flexible about our bond issuance plan, as we were in the previous year," Kaizuka said.
Debt problems in Greece and other euro zone countries have triggered downgrades by ratings agencies and shaken financial markets. The rating firms have also threatened to cut Japan's sovereign ratings if it fails to show a strong commitment to cutting debt in a mid-term fiscal plan expected next month.
Japan's five-year credit default swap (CDS) was quoted at 76-81 basis points on Wednesday, below a record high of 130 basis points set in February 2009 during the global financial crisis and lower than about 560 basis points for Greek debt on Tuesday.
But the net notional volume of Japan sovereign CDS, or aggregate amount of money that would change hands in the event of a default, has been increasing, a trader at a foreign bank said.
"Overseas players are buying Japan sovereign CDS along with other sovereign CDSs as the ratio of Japan's public debt against its GDP is very high," the trader said.
Many market players suspect Japanese government bond yields could rise as the country's savings could dwindle due to the rapid ageing of its population.
Kaizuka acknowledged such concerns.
"We need to recognise that the environment will eventually change. There may come a time when we would need to rely more on foreign investors," he said.
The ministry is trying to boost communication with overseas investors to prevent risk premiums on JGBs from rising, he also said.
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