Japan's worsening trade gap will make it harder to service the world's largest debt, fulfilling part of the doomsday scenario that Hayman Capital Management LP is betting on.
The nation's 10-year note yield may rise toward 10 percent from the world's third-lowest of 0.79 percent, while the yen weakens, said Richard Howard, who oversees Hayman's Japan-focused fund with J. Kyle Bass. That would represent the developed world's second-highest borrowing costs after Greece, and a surge to that level by the end of 2013 would cause losses of 42 percent for investors purchasing the securities now, data compiled by Bloomberg show.
Data on Monday showed Japan had its biggest half-year trade deficit on record. Hayman, which manages about $1 billion, made $500 million by predicting the U.S. housing market collapse, and Bass has said since at least 2010 that Japan's $12 trillion bond market is heading for a crash. So far, the debt has returned 3.1 percent in the past two years, Bank of America Merrill Lynch data show, while yields touched nine-year lows.