- Dec 20, 2009
- Reaction score
- Political Leaning
Mind you, their rates are still incredibly low - but this also feeds directly into how fast it becomes a problem. If your rate of borrowing is only 0.5%, then a half-percentage point increase in that rate means a doubling of the cost of servicing your debt.
Abenomics' massive monetary stimulus was supposed to depress long-term interest rates to spur economic activity, but the Japanese government bond market has other ideas.
Banks, unable to make money on their Japanese government bonds(JGBs) anymore, have begun sloughing off their holdings, putting upward pressure on yields. Major banks sold off about 11 percent of their holdings in April alone.
Large lenders have hiked their prime rates to make up for the loss of earnings on JGBs, which threatens to price potential borrowers out of the mortgage market, while higher long-term rates could sap corporate Japan's already anaemic demand for loans....
The plan's rationale was that the intense burst of monetary stimulus would drive down interest rates, as the central bank bought an amount equivalent to about 70 percent of new issuance each month.
Instead, after a brief tumble, rates began to rise as banks and other investors sold JGBs, worried they were holding assets that would lose value as the promised inflation emerged....
The worst-case scenario for Japan would be a bond market caught in a vicious circle of selling, which could happen some economists suggest if investors start to worry about the impact of rising long-term rates on the country's public debt....
"The Bank of Japan cannot control the JGB market. They have already used every method to control JGBs, so the JGB yield will go up sharply," said Takeshi Fujimaki, a former adviser to billionaire investor George Soros and now president of investment advisory firm Fujimaki Japan.....
In a sign that Japanese are also worried interest rates will continue to head higher, homebuyers are rushing to secure fixed-rate mortgages.
Japan's top three banks, Bank of Tokyo-Mitsubishi UFJ (8306.T), Mizuho Bank (8411.T) and Sumitomo Mitsui Banking Corp (8316.T) all raised 10-year fixed rates for most qualified borrowers to 1.6 percent in June, from 1.4 percent in May and 1.35 percent in April, to reflect the rise in benchmark long-term interest rates.
Banks themselves contributed to some of that rise as they shed JGBs. The total balance of Japanese government bonds held by the country's major banks plunged in April to 96.27 trillion yen, down 10.8 percent from March, dropping below the 100 trillion yen threshold for the first time since June 2011, BOJ data shows....