Hideous Kojima

Hideous Kojima

over 4 years ago2 mins

Japan’s government might feel like a “small island” (kojima) right now. A bond sale on Tuesday encountered the weakest demand in three years from investors – leading to the bonds' yields soaring 😓

What's going on here?

September was dreadful for Japanese bond prices (which move in the opposite direction to yields). But things are even worse now the Bank of Japan's announced it's planning to reduce its bond purchases – and the government’s own gigantic pension fund says it's also keen to invest more elsewhere after recording a negative return last year.

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Japan’s economy confronted another potential shock on Tuesday, too: a twice-postponed sales tax rise finally came into force. Japan's hoping the tax hike will help it work down its $9 trillion national debt – the world’s largest. Half of that is owned by... the Bank of Japan 🤯

Why should I care?

The last time Japanese sales tax rose, economic growth fell 7%. But the government is so desperate to avoid a repeat that it’s already spent most of next year's extra sales tax cash on demand-boosting tax breaks elsewhere.

The Bank of Japan is also hinting at fresh stimulus measures later this month – like even more negative interest rates 📉 Nevertheless, economists expect Japan’s economy to shrink by an annualized 2.7% this quarter. At least they’ll soon have the latest blockbuster video game from local master Hideo Kojima to cheer them up...

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Other government bonds’ prices fell (and their yields rose) on Tuesday as the news from Japan reverberated – although subsequent weak US manufacturing data later reversed those losses as investors sought safety 🙋

Demand for non-Japanese government bonds may, indeed, be unlikely to slow down anytime soon. Not only has the European Central Bank recently flagged a revival of its “quantitative easing” bond purchase policy, but some believe the US Federal Reserve may soon follow suit in order to avoid any more money-market madness...

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