Japan faces great decisions on the treatment of bond market fluctuations

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The Japanese government and the central bank are facing important decisions in the coming weeks, as the best way to deal with an increase in the registration of high levels in long -term borrowing costs and the possibility of the investor base will be reduced to the country’s debt.

The return on 30 -year -old bonds, which were less than 2.3 percent at the beginning of the year, reached 3.2 percent last week, while those in 40 -year bonds reached 3.7 percent, in consecutive weeks of poverty auctions amid renewable fears of the Japanese debt heap. Reverse the price.

The turmoil, which has declined slightly in recent days, has revealed what analysts say is a structural imbalance between the offer and the demand for Japan’s debts, which many investors are highly believed to prices.

He was a large population driver. The average life expectancy of the largest and wealthy generation after the war after the war is less than 20 years, compared to about 40 in 2000. This, according to Keven Chao, the head of the world’s sovereign and currency world at UBS Asset Management, leads to a significant structural change in the demand for long -date government bonds.

“This group (does not return) need to invest in the long run. But most government officials did not realize this structural change (happens),” said Zhao. “

In addition, life insurance companies are no longer reliable. Under the organizational pressure, they allocated their allocations for long -term bonds last year. However, merchants say this process has managed its course.

Last week’s rise in 20 -year revenue follows 2.61 percent of the 20 -year -old auction for government debt that has caused the weakest demand since 2012 this week, this week, Certainly observed auction Of 40 years, the 40 -year -old debts have been received, as she attracted the lowest offer to the cover since last July. This, as merchants said in Tokyo, confirmed the continuous “buyers’ strike”.

These issues appeared in the foreground, as the Bank of Japan advanced forward with efforts to “normalize” monetary policy and restore positive interest rates.

In addition to raising prices to 0.5 percent, since last year, BOJ has reduced the total bond purchases by $ 400 billion ($ 2.8 billion) per quarter, and plans to continue this pace until March 2026.

For many years, investors asked how the authorities planned to reconcile political and financial facts for the ratio of debt to GDP that has risen to nearly 250 percent, and a central bank that built an unconventional position, with approximately 52 percent of the debt market.

Analysts refer to the June 16th week as it is very important in determining the location of borrowing costs from here.

This week includes a two -day meeting of the BOJ Monetary Policy Committee, in which last year will be reviewed from the purchase of bonds. Some believe in the market that, given the turmoil, the committee may decide to slow down the pace in which its purchases decrease, in an attempt to keep the cover.

Later that week, the Ministry of Finance is scheduled to discuss debt issuance plans with market participants and can decide to expand sales at the end of the super. The return fell on Tuesday after it appeared that it started classifying the main brokers and other market participants on their perception of the bond market.

In a note of customers, economists at JPMorgan said that the speed of the high end revenue means that the upcoming BOJ review of quantitative tightening will bear more importance to the markets.

However, Benjamin Shatil, senior economists at JPMorgan, said that Boj seems to be behind the curve as Japan enters its fourth year with the main inflation above.

In addition, he referred to the huge government investment fund in pensions that does not raise its allocation to local assets for foreign assets, and rapidly tightening liquidity in the commercial banking sector.

“Everything asks the question – why buy?” He said.

After the weak auction on Wednesday for religion for 40 years, the key will be the Ministry of Finance’s contacts about its plans to issue it in the future, said Shinisho Cadota, a strategic expert in Barclays, Barclays, Tokyo.

He said that the long end of the JGB market was expressing issues that were brewing for some time, but, such as the normalization of Boj and the potential need of Japan to raise defense spending, became more material.

He added that, regardless of the organizational changes, the income of Japanese life insurance companies was a decrease as their products faced increasing competition from other investment vehicles and tax-free investment accounts known as Nisa-which the government strongly encouraged.

Kadota said it was unlikely to re -reduce JGB purchases. “There may be some amendments … but the solution should be the issuance of the Ministry of Finance (reduction),” he said.