Latest news with #JapaneseGovernmentBond
The Star
12 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.
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
Qatar Tribune
3 days ago
- Business
- Qatar Tribune
BOJ holds rates, says it will slow bond purchase taper
Agencies The Bank of Japan kept interest rates unchanged Tuesday and said it would taper its purchase of government bonds at a slower pace amid concerns about the effect of trade uncertainty on the world's number four economy. The central bank spent years buying up Japanese Government Bonds (JGBs) to keep yields low as part of an ultra-loose monetary policy aimed at banishing stagnation and harmful deflation. But it began moving away from that programme last year as inflation began to pick up and the yen weakened, and hiked interest rates for the first time since 2007 and began winding down its JGB purchases. It has since then lifted borrowing costs several times to 0.5 percent, their highest level in 17 years, and continued to buy fewer bonds. However, analysts say uncertainty sparked by U.S. President Donald Trump's trade war has led officials to hold off more hikes, and on Tuesday they held rates again, while saying they would slow the pace of JGB reductions. Purchases will be cut in principle 'by about 200 billion yen each calendar quarter from April-June 2026' -- from around 400 billion yen per quarter. Carol Kong, an analyst at the Commonwealth Bank of Australia outlined the possible reasons for the decision ahead of the release of the BOJ policy statement. 'Slowing the bond taper will help keep interest rates lower than otherwise, providing support to the economy amid heightened trade uncertainty,' she told AFP. Speculation of such a move 'intensified after a surge in the 'super long' Japanese Government Bond (JGB) yields in recent months', Kong added. The yen weakened on Tuesday, with the dollar buying 144.80 yen around midday, compared with around 144.30 yen on Monday, with the BOJ's main rate much lower than the U.S. Federal Reserve's 4.25-4.5 percent. 'The recent softening of the yen could already partly reflect expectations for a cautious policy update from the BOJ... alongside negative spillovers for Japan from the Middle East conflict,' Lee Hardman of MUFG had said before the decision. The BOJ also highlighted the risks ahead for the economy, saying 'growth is likely to moderate, as trade and other policies in each jurisdiction lead to a slowdown in overseas economies and to a decline in domestic corporate profits and other factors'. However, 'factors such as accommodative financial conditions are expected to provide support', it added. Kong added that the bank 'will likely hold off on rate hikes until there is further clarity on US trade policy'. 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 the country's goods in early April but later paused it along with similar measures on other trading partners. Prime Minister Shigeru Ishiba said Monday there had been no breakthrough on a trade deal after talks with 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.
Japan Today
3 days ago
- Business
- Japan Today
BOJ holds rates, says it will slow bond purchase taper
By Kyoko HASEGAWA The Bank of Japan kept interest rates unchanged Tuesday and said it would taper its purchase of government bonds at a slower pace amid concerns about the effect of trade uncertainty on the world's number four economy. The central bank spent years buying up Japanese Government Bonds (JGBs) to keep yields low as part of an ultra-loose monetary policy aimed at banishing stagnation and harmful deflation. But it began moving away from that programme last year as inflation began to pick up and the yen weakened, and hiked interest rates for the first time since 2007 and began winding down its JGB purchases. It has since then lifted borrowing costs several times to 0.5 percent, their highest level in 17 years, and continued to buy fewer bonds. However, analysts say uncertainty sparked by U.S. President Donald Trump's trade war has led officials to hold off more hikes, and on Tuesday they held rates again, while saying they would slow the pace of JGB reductions. Purchases will be cut in principle "by about 200 billion yen each calendar quarter from April-June 2026" -- from around 400 billion yen per quarter. Carol Kong, an analyst at the Commonwealth Bank of Australia outlined the possible reasons for the decision ahead of the release of the BOJ policy statement. "Slowing the bond taper will help keep interest rates lower than otherwise, providing support to the economy amid heightened trade uncertainty," she told AFP. Speculation of such a move "intensified after a surge in the 'super long' Japanese Government Bond (JGB) yields in recent months", Kong added. The yen weakened on Tuesday, with the dollar buying 144.80 yen around midday, compared with around 144.30 yen on Monday, with the BOJ's main rate much lower than the U.S. Federal Reserve's 4.25-4.5 percent. "The recent softening of the yen could already partly reflect expectations for a cautious policy update from the BOJ... alongside negative spillovers for Japan from the Middle East conflict," Lee Hardman of MUFG had said before the decision. The BOJ also highlighted the risks ahead for the economy, saying "growth is likely to moderate, as trade and other policies in each jurisdiction lead to a slowdown in overseas economies and to a decline in domestic corporate profits and other factors". However, "factors such as accommodative financial conditions are expected to provide support", it added. Kong added that the bank "will likely hold off on rate hikes until there is further clarity on US trade policy". 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 the country's goods in early April but later paused it along with similar measures on other trading partners. Prime Minister Shigeru Ishiba said Monday there had been no breakthrough on a trade deal after talks with 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. © 2025 AFP
Al Etihad
3 days ago
- Business
- Al Etihad
Bank of Japan holds rates, says to slow bond purchase taper
17 June 2025 08:53 TOKYO (AFP) The Bank of Japan kept interest rates unchanged Tuesday and said it would taper its purchase of government bonds at a slower pace amid concerns about the effect of trade uncertainty on the world's number four central bank spent years buying up Japanese Government Bonds (JGBs) to keep yields low as part of an ultra-loose monetary policy aimed at banishing stagnation and harmful it began moving away from that programme last year as inflation began to pick up and the yen weakened, and hiked interest rates for the first time since 2007 and began winding down its JGB has since then lifted borrowing costs several times to 0.5 percent, their highest level in 17 years, and continued to buy fewer analysts say uncertainty sparked by US President Donald Trump's trade war has led officials to hold off more hikes, and on Tuesday, they held rates again, while saying they would slow the pace of JGB will be cut in principle "by about 200 billion yen each calendar quarter from April-June 2026" -- from around 400 billion yen ($2.8 billion) per Kong, an analyst at the Commonwealth Bank of Australia, outlined the possible reasons for the decision ahead of the release of the BoJ policy statement."Slowing the bond taper will help keep interest rates lower than otherwise, providing support to the economy amid heightened trade uncertainty," she told of such a move "intensified after a surge in the 'super long' Japanese Government Bond (JGB) yields in recent months," Kong yen weakened on Tuesday, with the dollar buying 144.80 yen around midday, compared with around 144.30 yen on Monday, with the BoJ's main rate much lower than the US Federal Reserve's 4.25-4.5 percent. "The recent softening of the yen could already partly reflect expectations for a cautious policy update from the BoJ... alongside negative spillovers for Japan from the Middle East conflict," Lee Hardman of MUFG had said before the decision.
