Japan faces the rising risk of surging bond yields in the decade from 2015, according to SMBC Nikko Securities Inc.
The nation has maintained a current-account surplus in the past 30 years, with household savings financing the world's largest government debt and helping drive down bond yields, said Hidenori Suezawa, chief strategist at SMBC Nikko Securities, a unit of Japan's third-largest bank.
Japan will likely have difficulty sustaining the surplus as the population ages and as a record earthquake compels firms to move production overseas, he said. Lawmakers in the Liberal Democratic Party are planning for what they call "X-day," when Japan can no longer internally finance its budget deficits.
"X-day is the day when JGB yields will surge," Suezawa said at a forum in Tokyo Tuesday. "While Japan may need to rely on overseas investors for financing if the country incurs continuous current-account deficits, they won't buy JGBs if yields stay at current levels. Yields may approach the levels seen in the U.S. and Germany."
The yield on Japan's benchmark 10-year bonds is 1.16 percent, and has averaged about 1.38 percent in the past 10 years. Ten-year yields are 2.99 percent in the U.S. and 3.1 percent in Germany and more than 15 percent in Greece.