Expert tips yields on super-long JGBs to stabilizeーNHK WORLD-JAPAN NEWS
it seems everywhere we look we can see warning signs for Japan’s economy some of the biggest right now are in the market for government bonds yes Reena uh we talked about this earlier this week in our program but the focus is on super long bonds which mature over multiple decades often 20 to 40 years the interest rates on these are now at record highs and Yuko Kushima is here to explain why that’s a problem so uh Yugo who’s in the market for these type of bonds well it’s mainly institutional investors like uh life insuranceers and pension funds for example now these are big players with long-term obligations to their customers they need safe predictable investments that match those timelines the super long bonds are important for another reason that affects us all they provide a window into the health of the government’s finances how so well when yields on government bonds go up it means the government has to pay out more money to investors that puts the government further into debt and Japan already has the highest debt to GDP ratio of any developed nation if you want to see how bad the situation is right now check out this chart from the finance ministry you can see that for Japan the data is already more than doubled GDP now let’s take a look at how things have been playing out in recent weeks firstly the 30-year JGB the yield on that bond has been climbing steadily and on May 21st it temporarily hit a record 3.185% yields are just repayments as a percentage of the bond price so if they go up it means the bond price has dropped and falling prices signal weak demand how weak well on Thursday the finance ministry held an auction for 30-year government bonds given all the concern around this there was intense interest in outcome and it wasn’t pretty the bid to cover ratio was the lowest in 18 months so demand right now is dismal and bidding in May for the 20 and 40year bonds wasn’t much better well I spoke with Miwa Takashi the executive economist at Nomura Securities he says Japan isn’t the only market dealing with this problem the Trump administration is still negotiating tariffs with its trading partners but the fear is that if it’s implements the duties in their current form it will hurt the US economy there’s speculation that to mitigate the slump the government would cut taxes that would worsen the fiscal situation of the US government and make US treasuries less desirable germany is widely considered the gold standard for fiscal discipline but even there things are changing the European powerhouse wants to fund a big increase in spending to do that it’s going to start issuing more bonds which means taking on more debt the Trump administration is scaling back on America’s security commitment to countries in Europe so Germany and other Euro zone members now find themselves in a situation where they have to drastically ramp up their defense spending to compensate japan’s mounting public debt may not be a unique problem but Mia says the reason for it are for one thing the Bank of Japan is raising rates even as the US and many other countries are cutting them higher rates bring down bond prices and make them a less desirable asset miwa says there’s another reason with an election approaching people are convinced a cut in the consumption tax is a real possibility japan’s fiscal situation is already pretty dire a consumption tax reduction would further weaken its fiscal health anxiety could grow to the point where people even start to fear a default on government bonds so where to from here mewa says he thinks rates on super long bonds are likely to stabilize in the short term but not for entirely positive reasons the main one is extreme uncertainty that America’s trade policies are fueling around the world miwa says the volatility could force the Bank of Japan to hold fire on further rate rises for the time being but he also says that in the long term there’s a good chance that appetite for Japanese government bonds will return there are problems for our economy in particular the aging society and declining population the result is less demand for loans to invest in factories and equipment but the upside is that there’ll be more money lying around that needs to be invested somewhere to generate returns i think there’s a good chance those funds will find their way back to the government bond market well perhaps not the most compelling argument for parking your money in government bonds but a small ray of hope for the government at least
Japan’s national debt is under scrutiny again as yields on super-long government bonds surge. Newsroom Tokyo’s Yuko Fukushima asked an expert what to expect next.
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