'Drone' money or zaito bonds more likely from the BOJ instead

AN awful lot of fuss and confusion has been created recently by reports that the Japanese government may be about to begin issuing "perpetual bonds" or non-repayable IOUs, thus harking back to the 1930s when military-driven spending eventually led Japan into hyper-inflation.

Such reports have suggested that, on a recent visit to Tokyo, former US Federal Reserve Board chairman Ben Bernanke broached the idea of issuing perpetual bonds to Japanese prime minister Shinzo Abe and to Bank of Japan governor Haruhiko Kuroda.

It is possible to envisage a scenario under which a Japanese government whose outstanding gross debt to gross domestic product is approaching 250 per cent might wish to issue securities that did not add further to its heavy debt burden. It may appear likely too that the idea would appeal to Mr Abe, who is keen to embark upon new fiscal stimulus, and who might one day wish to tap into a new financing avenue for funding his ambitions to revise Japan's pacifist constitution and to step up military spending.