Latest news with #JGB
Japan Times
6 hours ago
- Business
- Japan Times
Rural bank plans its return to Japan bonds after winning on Nvidia
A regional bank that has stood out among its peers for making money on assets ranging from U.S. Treasuries to Nvidia is now looking closer to home for investments. Iyogin Holdings, which shunned Japanese government bonds during the era of negative interest rates, is ready to jump back in once a rise in yields runs its course, said Chief Executive Officer Kenji Miyoshi. Yields on Japan's sovereign debt have risen from rock-bottom levels as the return of inflation to the economy prompts the central bank to pare bond purchases and raise interest rates. That's led financial institutions to contemplate when to return to the nation's $7.9 trillion debt market after chasing higher returns abroad for years — a task that has been complicated by recent ructions, including a spike in long-term yields. Less than 10% of Iyogin's ¥1.8 trillion ($12 billion) securities portfolio is in Japanese sovereign debt. Once yields become attractive enough, JGBs could make up as much as half of its portfolio, Miyoshi said in an interview in the city of Matsuyama, Ehime Prefecture, about 800 kilometers southwest of Tokyo. Miyoshi said the 10-year JGB yield is likely to peak at around 2%, based on his assumption of the Bank of Japan's policy rate reaching 1.5%. "I think we can start buying at around 1.7% or 1.8%,' he said. The decision also depends on how lending, deposits and other components of the balance sheet will trend due to rising rates. Japan's 10-year yields are currently around 1.4%, and the BOJ this week kept its key overnight rate at 0.5%. Iyogin is already preparing for its return to the market. Miyoshi said the bank is now ready to use the same electronic platform for JGBs as the one it employs for stocks and foreign bonds, noting it allows trades to be executed more swiftly. That would differentiate it from bigger rivals in Japan, where government bond trading is often still done using old-style voice methods. Miyoshi also spoke about the potential for consolidation in Japan's regional banking industry, saying there are too many lenders in a country with a shrinking population. He expects a wave of mergers triggered by a growing sense of urgency among bank management. While Iyogin has no plans to pursue mergers now, Miyoshi doesn't want to be passive once moves toward combinations reach its home region of Shikoku — the smallest of Japan's four main islands — and neighboring Chugoku. "We want to play a central role in these regions,' he said from the bank's brand-new headquarters building. "For that, we have to build up financial and operational robustness.' Hefty trading gains from Treasuries and other foreign bonds helped Iyogin post record profits for a third straight year, making it an outlier in Japan's banking industry, where much larger firms suffered from wrong bets on interest rates. Iyogin Holdings CEO Kenji Miyoshi says once yields become attractive enough, Japanese government bonds could make up as much as half of its portfolio. | Bloomberg Nvidia added to the bank's successes. The value of Iyogin's investment in the U.S. chipmaker grew about 10 times since it bought a stake five years ago, when the yen was also stronger. The bank was able to lock in gains by selling some of its holdings in the year ended March. Miyoshi played down the bank's winning streak, saying it's simply a result of trying to minimize risks through diversification. The bank reduced some of its foreign bond holdings and other assets in anticipation of an increase in market uncertainty following the inauguration of the second Trump administration. In the process, its market securities-related profits more than doubled last fiscal year. Miyoshi said the bank made gains from Treasuries and other foreign bonds without currency hedges because it sold them when the yen was trending cheaper against the dollar. Japanese banks usually hedge their investments in assets abroad to guard against currency swings, but Iyogin held about ¥300 billion worth of unhedged foreign bonds as of March, in addition to ¥500 billion in those with such protection. When the Japanese currency moves higher against the dollar, the value of the unhedged bonds takes a hit in yen terms. At the same time, Miyoshi said that could be mitigated by a rise in dollar-based prices of these notes, since U.S. rates are likely to be lower in such a situation. He also said the bank's portfolio is made up of a mix of assets whose moves are designed to cancel each other out. Equities are part of that diversification. Iyogin is investing in individual U.S. and Japanese stocks and has room to add more exposure as it reduces ¥25 billion in what is known as strategic shareholdings, which are owned to cement business ties with corporate clients. Iyogin is a rarity in Japan's regional bank industry, where many of the nation's roughly 100 local lenders struggle with securities portfolio management because of a lack of expertise. The bank grooms its insiders to become market hands and doesn't hire mid-career outsiders. Still, Miyoshi, who spent years in Iyogin's markets team, said he is open to breaking with tradition by recruiting external talent. "We can sharpen our alertness to risks by taking in these people and their diverse views,' he said.
The Star
7 hours ago
- Business
- The Star
Caution by BoJ likely to keep Japanese capital overseas
Japan still has plenty of financial muscle with a net US$3.5 trillion in overseas stocks and bonds. — Reuters The Bank of Japan (BoJ) is taking a more cautious approach to reducing its balance sheet, meaning Japanese capital invested overseas is less likely to be coming home anytime soon. In the face of heightened economic uncertainty and recent volatility at the long end of the Japanese Government Bond (JGB) curve, the BoJ announced on Tuesday that it will halve the rate of its balance sheet rundown in fiscal year 2026 to 200 billion yen or about US$1.4bil a quarter. The central bank began gradually shrinking its bloated balance sheet 18 months ago and last August began an even more gradual interest rate-raising cycle, representing a historic shift after years of maintaining ultra-low and even negative nominal rates. All else being equal, this modest tightening would be expected to narrow the yield gap between Japanese and foreign bonds, making JGBs more attractive to domestic and foreign investors while also strengthening the yen. So why hasn't the Japanese capital been coming home? In part, because Japan's real interest rates and bond yields remain deeply negative, and the latest BoJ move suggests this is likely to remain the case for the foreseeable future. The prospect of Japanese real returns staying deeply negative is enhanced by current inflation dynamics. Price pressures Inflation in Japan is the highest in two years by some measures and may prove sticky if Middle East tensions continue to put upward pressure on oil prices. Japan imports around 90% of its energy and almost all of its oil. Japan's yield curve could also potentially flatten from its recent historically steep levels if the BoJ's decision caps or lowers long-end yields. And the curve will flatten further if the BoJ continues to 'normalise' interest rates – something BoJ governor Kazuo Ueda insists is still on the table, although markets think the central bank is on hold until next year. Either way, a flatter yield curve won't be particularly appealing to Japanese investors who may be considering pulling money out of the United States or European markets. And there is a lot of money to repatriate, meaning even marginal shifts in Japanese investors' positioning could be meaningful. Assets abroad While Japan is no longer the world's largest creditor nation, having recently lost the crown to Germany after holding it for more than three decades, it still has plenty of financial muscle with a net US$3.5 trillion in overseas stocks and bonds, the highest total ever. Analysts at Deutsche Bank estimate that Japanese life insurers and pension funds hold more than US$2 trillion in foreign assets, around 30% of their total assets. What would prompt Japanese investors to repatriate? In a deep dive on the topic last month, JP Morgan analysts said several stars would have to align, namely a sustainable rise in long-term Japanese interest rates, an improvement in the country's public finances, and steady yen appreciation against the US dollar. That's a tall order. But if this were to materialise, and banks and other depository institutions reverted to pre-'Abenomics' asset allocation ratios of 82% domestic bonds and 13% foreign securities, repatriation flows from these institutions alone could amount to as much as 70 trillion yen. That's just under US$500bil at current exchange rates. That's not JP Morgan's base case though, certainly not in the near term. But over the long term, they think some reversal of the flow of capital from JGBs into US bonds over the last decade or more is 'plausible'. The BoJ's decision on Tuesday probably makes the prospect of any significant capital shift less plausible, though, at least for now. — Reuters Jamie McGeever is a columnist for Reuters. The views expressed here are the writer's own.
Business Times
a day ago
- Business
- Business Times
Japan to cut super-long bond sales by 10% to calm markets
[TOKYO] Japan's government plans to cut sales of super-long bonds by about 10 per cent from its original plan in a rare revision to its bond programme for the current fiscal year, trimming overall bond issuance as a result, a draft document seen by Reuters showed. The move aims to soothe market oversupply concerns, after weak demand at recent auctions and a surge in super-long yields to record highs last month rattled the bond market. The step also follows the Bank of Japan's decision this week to slow its tapering of bond purchase from next fiscal year, signalling caution as it removes remnants of its massive, decade-long monetary stimulus. The revised issuance plan will be presented to primary dealers for discussion at a meeting on Friday. Additionally, there are also proposals to buy back some previously issued super-long JGBs with low interest rates to better balance supply and demand. The planned reduction in 20-, 30- and 40-year super-long bond sales would be partly offset by increased issuance of shorter-term notes, as well as bonds specifically designed for households. As a result, the total Japanese government bond (JGB) scheduled sales for the year through next March are set to fall by 500 billion yen (S$4.42 billion) to 171.8 trillion yen, according to the draft of the revised bond programme. Issuing a larger amount of shorter-term bonds, however, would require a careful balancing act as the government would need to roll over debt more frequently and make its finances more vulnerable to bond market swings. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Specifically, the revised plan calls for reducing 20-year JGB sales by 900 billion yen to 11.1 trillion yen, 30-year JGBs by 900 billion yen to 8.7 trillion yen and 40-year JGBs by 500 billion yen to 2.5 trillion yen. This means starting next month, sales of each of these tenors will be cut by 100 billion yen at every auction. Instead, the government will boost sales of two-year debt, one-year and six-month treasury discount bills by 600 billion yen each. At every auction starting October, sales of two-year debt will be raised by 100 billion yen to 2.7 trillion yen. The government will also increase issuance of principal-guaranteed JGBs for households by 500 billion yen. Debt markets rallied on the news with an auction of five-year JGBs seeing the highest demand in almost two years. Bonds extended gains in the afternoon session on Thursday, led by shorter-dated securities. The five-year yield fell 4 basis points to 0.965 per cent. Yields move inversely to bond prices. The longest dated bonds fell, with the 30-year yield rising 1.5 basis points to 2.945 per cent. The original plan had called for cuts in 30- and 40-year bond sales to reflect shrinking demand from life insurers who mostly completed purchases of longer-dated bonds to comply with new solvency regulations. But as the worsening finances of advanced economies drew more market scrutiny, super-long JGBs became a target of a global bond selloff last month. 'It was a (positive) surprise to the market that the government is not increasing sales of five-year JGBs in the revision,' said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management. 'But heavier reliance on shorter-term bonds is a sign of Japan's falling credit quality. Essentially, it's not the ministry of finance's responsibility but lawmakers' to carry out debt management with a sense of crisis.' REUTERS
Yahoo
a day ago
- Business
- Yahoo
Yen slides ahead of Bank of Japan policy decision
The yen fell against the dollar ahead of a Bank of Japan decision Tuesday, with officials expected to hold interest rates steady but tweak their bond purchase policy. The central bank last year said it would scale down its huge purchases of government bonds -- part of attempts to move away from a quantitative easing programme designed to banish stagnation and harmful deflation. It is now considering slowing the pace of these cutbacks, analysts and media reports said. "Slowing the bond taper will help keep interest rates lower than otherwise, providing support to the economy amid heightened trade uncertainty," Carol Kong, an analyst at the Commonwealth Bank of Australia, told AFP. Speculation of such a move "intensified after a surge in the 'super long' Japanese Government Bond (JGB) yields in recent months", she explained. The dollar surged higher than 145 yen in morning trade, compared with levels of around 144.30 yen on Monday. "The recent softening of the yen could already partly reflect expectations for a cautious policy update from the BoJ... alongside negative spill-overs for Japan from the Middle East conflict," said Lee Hardman of MUFG. The BoJ is expected to keep its main interest rate around 0.5 percent, lower than the US Federal Reserve's 4.25-4.5 percent. Bank officials began lifting borrowing costs last year after nearly two decades of ultra-loose monetary policies aimed at kick-starting torpid economic growth in Japan. "The BoJ will likely hold off on rate hikes until there is further clarity on US trade policy," Kong said. Japan, a key US ally and its biggest investor, is subject to the same 10 percent baseline tariffs imposed on most nations plus steeper levies on cars, steel and aluminium. Trump also announced an additional 24 percent "reciprocal" tariff on Japan in early April but later paused it along with similar measures on other countries. Prime Minister Shigeru Ishiba said Monday there had been no breakthrough on a US trade deal after talks with President Donald Trump on the sidelines of the G7 summit in Canada. "We still believe the Bank may hike rates in the second half of the year as it remains committed to normalising monetary policy," said Katsutoshi Inadome of SuMi TRUST. "We expect that domestic demand will remain solid and that there is a chance economic conditions will improve to the point where the BoJ can consider interest hikes," he said. kh-jug-kaf/dan Sign in to access your portfolio
Zawya
a day ago
- Business
- Zawya
Japan to cut super-long bond sales by 10% to calm markets, draft shows
TOKYO - Japan's government plans to cut sales of super-long bonds by about 10% from its original plan in a rare revision to its bond programme for the current fiscal year, trimming overall bond issuance as a result, a draft document seen by Reuters showed. The move aims to soothe market oversupply concerns, after weak demand at recent auctions and a surge in super-long yields to record highs last month rattled the bond market. The step also follows the Bank of Japan's decision this week to slow its tapering of bond purchase from next fiscal year, signalling caution as it removes remnants of its massive, decade-long monetary stimulus. The revised issuance plan will be presented to primary dealers for discussion at a meeting on Friday. Additionally, there are also proposals to buy back some previously issued super-long JGBs with low interest rates to better balance supply and demand. The planned reduction in 20-, 30- and 40-year super-long bond sales would be partly offset by increased issuance of shorter-term notes, as well as bonds specifically designed for households. As a result, the total Japanese government bond (JGB) scheduled sales for the year through next March are set to fall by 500 billion yen ($3.44 billion) to 171.8 trillion yen, according to the draft of the revised bond programme. BALANCING ACT Issuing a larger amount of shorter-term bonds, however, would require a careful balancing act as the government would need to roll over debt more frequently and make its finances more vulnerable to bond market swings. Specifically, the revised plan calls for reducing 20-year JGB sales by 900 billion yen to 11.1 trillion yen, 30-year JGBs by 900 billion yen to 8.7 trillion yen and 40-year JGBs by 500 billion yen to 2.5 trillion yen. This means starting next month, sales of each of these tenors will be cut by 100 billion yen at every auction. Instead, the government will boost sales of two-year debt, one-year and six-month treasury discount bills by 600 billion yen each. At every auction starting October, sales of two-year debt will be raised by 100 billion yen to 2.7 trillion yen. The government will also increase issuance of principal-guaranteed JGBs for households by 500 billion yen. Debt markets rallied on the news with an auction of five-year JGBs seeing the highest demand in almost two years. Bonds extended gains in the afternoon session on Thursday, led by shorter-dated securities. The five-year yield fell 4 basis points to 0.965%. Yields move inversely to bond prices. The longest dated bonds fell, with the 30-year yield rising 1.5 basis points to 2.945%. The original plan had called for cuts in 30- and 40-year bond sales to reflect shrinking demand from life insurers who mostly completed purchases of longer-dated bonds to comply with new solvency regulations. But as the worsening finances of advanced economies drew more market scrutiny, super-long JGBs became a target of a global bond selloff last month. "It was a (positive) surprise to the market that the government is not increasing sales of five-year JGBs in the revision," said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management. "But heavier reliance on shorter-term bonds is a sign of Japan's falling credit quality. Essentially, it's not the ministry of finance's responsibility but lawmakers' to carry out debt management with a sense of crisis." ($1 = 145.1500 yen)
