Financial markets continue to send warning signals about Japan's economy. The most worrying is the possibility of a "triple fall" in shares, securities and yen rates. Investors here and abroad, increasingly nervous about the risk of holding Japanese assets, are selling off their holdings.
The indications are that investor confidence in the Japanese economy is dropping to a dangerous level. Investors seem concerned particularly about the falling price of government bonds. In fact, the growing selling pressure on these securities is pushing up their yields, a benchmark for long-term interest rates. The rise in the cost of money, unless held in check, will worsen the recession.
Government bonds are among the most creditworthy of securities. Therefore, sell-offs of government bonds can have more serious consequences than sell-offs of shares. Indeed, the growing moves to dump national securities suggests that investors are increasingly worried about a looming crisis in the bond market.