You might have read that Japanese leader Sanae Takaichi has a new friend.
“Japan’s PM: I’m so lonely I befriended a cockroach,” ran the headline in the UK’s Telegraph this week. One tweet of the article has received over 8 million views.
It’s a great story with one problem: It’s not remotely true.
The saga stems from a Takaichi tweet in which she said that while her official residence has a reputation for being haunted, it was not a ghost that made her scream but a cockroach. Citing a belief in reincarnation, she couldn’t bring herself to kill the pest; when she found out that her staff had arranged for an extermination, she expressed mild regret.
Most headlines in the Tokyo media reported on how bizarre the international coverage was, with one asking “translation error, or ridicule?”
You might well ask, who cares? This is Japan, after all, the country about which you can write anything and worry later if it’s true, from fictional eyeball-lickers to supposed post-Covid-mask smile coaches. Normally, these stories don’t have much impact.
Except as this episode shows, official communications can be misread, deliberately or not. Consider what that means for increasingly sensitive yen and bond markets.
As the Bank of Japan retreats from the bond market, foreign investors are increasingly dictating prices. They own only about 13% of outstanding Japanese government bonds, but now account for up to 30% of purchases of the benchmark 10-year, and dominate the short-term bill market. The FX market is of course international, with the carry trade and recent US intervention amplifying that interest.
But the government still communicates as though domestic institutions are the only audience that matters. It was caught flat-footed earlier this summer when international investors misinterpreted domestic-focused early leaks of a key economic document to mean profligate spending and opposition to BOJ independence. Yields spiked in response.
Communication needs to be tailored with this kind of reaction in mind. Many are just not familiar with the realities of Japan’s debt situation — that while gross debt is high, so are its assets, meaning net debt is far more manageable; that its primary budget deficit is now one the lowest among its peers; that forecasts for debt-servicing costs include both interest and principal, unlike the net-interest figures commonly cited for the US.
I have encountered some who think that the entirety of her 370 trillion yen public-private investment plan is going to be funded by new JGB issuance. Not only is this wildly incorrect, even if the administration wanted to spend this much , practical constraints mean it would be completely impossible. It’s like betting on land prices expecting the first Trump administration to actually build the wall.
Given that the eyes of the world are on Japan in a way they have rarely been before, the old communications model — in which news is leaked first to the domestic press, with the international reaction an afterthought, if it’s thought about at all — needs a revamp.
There is a growing narrative that considers the prime minister to be a spendthrift in a country that is already on the fiscal ropes. This supposed imminent collapse is now an increasingly prominent explanation for the yen still testing 160, despite the reduced rate gap with the US, the BOJ communicating an increased pace of hikes, and prospects of a Federal Reserve tightening receding.
“Is Japan bust? You’d think so reading recent coverage,” is the accurate summary from Nicholas Smith, the veteran Japan strategist who recently left CLSA, referring to often hyperbolic reports.
The prime minister also faces a powerful domestic perception, deeply entrenched in the Finance Ministry and local commentators, that warns of imminent fiscal calamity. It’s simple to grasp, and so travels very easily overseas. If she wants room to pursue her ambitious growth plans, it’s one she must fight.
