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Japan faces a crisis

Inflation and excessive spending could turn into a crisis in Japan against the backdrop of the fact that investors in government bonds are preparing for an increase in consumer prices. So say the economists of Morgan Stanley. At the last auction of bonds, the yield of which is tied to inflation, demand exceeded supply by 2,87 times. Yield of non-inflationary 10-year papers is likely to reach 0,84% by the end of 2014.

Head of Economic Research for Japan Morgan Stanley MUFG Securities Robert Feldman notes that the Japanese government has 2-3 years to cope with rising costs, or will face a crisis.

In the current year, 5% sales tax should be increased in two stages, with social security spending increasing by more than 4%, and there is a risk of rising debt service costs. Apparently, in the next fiscal year, the growth rate of spending will outpace earnings growth.

“There is a risk that interest payments will rise if the government fails to cut the budget deficit when inflation and profitability rise,” Feldman said. "In the absence of an increase in tax revenues resulting from a tangible improvement in the real sector of the economy, there is a risk of a crisis."

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