Thursday, December 26, 2013

I am not excessively concerned over Japan

And how about the original: Japan? If Abenomics works, inflation should rise and with it yields. How big is the risk of reaching a tipping point, when Japan will have trouble servicing its huge debt?
Nouriel Roubini : There is a whole bunch of counterarguments. First, you achieve 2% of inflation only when growth is robust. The better the growth in Japan – either because of monetary and fiscal stimulus or structural reforms – the better is the outlook for the debt dynamics. Second, there is no 1:1 relation between inflation rate and long term yields, as long as a central bank is aggressively buying a big fraction of these bonds for a prolonged period of time. Then the real rates tend to become negative – if inflation goes up even more, which again helps the debt dynamics. I am not excessively concerned over Japan. Of course, in the medium term Japan needs more structural reforms to enhance its growth potential, because only growth can really resolve the debt dynamics, fiscal adjustment alone is not sufficient. But they have time. - in

Nouriel Roubini is an American professor of Economics at New York University`s Stern School of Business and chairman of RGE Roubini Global Economics
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