It has been a long time since Japan's bubble in stock and land prices collapsed. Now, however, there is concern that a new kind of bubble -- a "bond bubble" -- may be forming. Financial markets are already "saturated," according to analysts, with massive amounts of bonds that the government issues each year. If such borrowing continues at the current rate of over 30 trillion yen a year, sooner or later it will create a huge glut of bonds, possibly sending their prices into a tail spin.
The Finance Ministry seems well aware of the gravity of the situation. That helps explain why it is trying hard to develop new outlets for government bonds. Recently the ministry held briefing sessions abroad to lure foreign institutional investors. Here at home, it has increased special bond sales to individuals.
In the long run, the government has no choice but to reduce annual bond issues. The basic requirement is to maintain a reasonable supply-demand balance in the bond market. That makes it essential to pursue a prudent bond-management policy. Failing that, the nightmare of a bond crash could well become a reality.