Japanese Interest Rates begin to Rise (1 Viewer)

[cpwill]

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....

 

[Canell]

1% is still incredibly good.

 

[austrianecon]

1% is still incredibly good.

1% on how much debt? That's the question. So for example Japan will issue close to ¥170 trillion in 2014. That's roughly, $1.5 trillion. Paying 1% on that would be close to $150 billion in interest for that year alone. Problem is... nobody wants to hold Japanese bonds hence the rise in interest rates. So the Japanese Government is gonna start issuing 10 year bonds which are inflation adjusted. If Japanese "plan" works, it'll cost a sky rocketing debt service payment.

 

[Canell]

1% on how much debt?

It doesn't matter, 1% is 1%.

 

[austrianecon]

It doesn't matter, 1% is 1%.

Umm pay out for 1% on $1 trillion is $100 billion. Payout on $100 billion is $1 billion. So it does matter.

 

[JP Hochbaum]

It is funny how the deficit scare crowd have to claim small little upticks in bond yields as a victory. It's kind of like getting through an inning in baseball, scoring a run, bragging about it, and then losing 15-1 at the end of the game.

 

[Spartacus FPV]

It is funny how the deficit scare crowd have to claim small little upticks in bond yields as a victory. It's kind of like getting through an inning in baseball, scoring a run, bragging about it, and then losing 15-1 at the end of the game.

Who here has expressed a sense of victory?

 

[JP Hochbaum]

Who here has expressed a sense of victory?

There are a lot of things implied by reporting such a minor piece of news.

 

[austrianecon]

It is funny how the deficit scare crowd have to claim small little upticks in bond yields as a victory. It's kind of like getting through an inning in baseball, scoring a run, bragging about it, and then losing 15-1 at the end of the game.

Problem here JP is.. we are 3 months in Abeonomics. Yields have climbed every month since the announcement and still are climbing. Just look at the chart for the Japanese 10 year bond. it was at .44% before the announcement, it's now at .85%. So over 3 months it basically doubled. We got another 21 months of easing in Japan. Japan's 10 yr rate could be 2-3% by that time (it's very very possible). Japan couldn't handle that kind of bond rate on a 10 y/r.

 

[CanadaJohn]

New borrowing will not be affected - still very affordable - but as you note, renewed or flexible rate borrowing will be adversely affected and this is what should be feared here in the west - our day will come.

 

[Spartacus FPV]

There are a lot of things implied by reporting such a minor piece of news.

:roll:

 

[austrianecon]

New borrowing will not be affected - still very affordable - but as you note, renewed or flexible rate borrowing will be adversely affected and this is what should be feared here in the west - our day will come.

Imagine what it will do to mortgage rates in Japan. :shock:

 

[Ahlevah]

It doesn't matter, 1% is 1%.

Look at this chart:



Look what's happened to Japan's interest expense over the last couple of years. The country's cost of capital has been rising even as rates dropped. That happens when you tack on 40% of your annual spending to your national debt every year while your tax revenues match what you collected in 1985. Even at these low rates, Japan's debt service now consumes half of the country's budget. It costs Japan almost one-quarter of the budget just to pay the interest at these low rates, so if rates rise even a little bit it's a big deal.

https://www.mauldineconomics.com/frontlinethoughts/central-bankers-gone-wild

 

[cpwill]

Look at this chart:

View attachment 67149051

Look what's happened to Japan's interest expense over the last couple of years. The country's cost of capital has been rising even as rates dropped. That happens when you tack on 40% of your annual spending to your national debt every year while your tax revenues match what you collected in 1985. Even at these low rates, Japan's debt service now consumes half of the country's budget. It costs Japan almost one-quarter of the budget just to pay the interest at these low rates, so if rates rise even a little bit it's a big deal.

https://www.mauldineconomics.com/frontlinethoughts/central-bankers-gone-wild

Bingo.

What are the figures of cost of debt rollover v revenue?

 

[JP Hochbaum]

Problem here JP is.. we are 3 months in Abeonomics. Yields have climbed every month since the announcement and still are climbing. Just look at the chart for the Japanese 10 year bond. it was at .44% before the announcement, it's now at .85%. So over 3 months it basically doubled. We got another 21 months of easing in Japan. Japan's 10 yr rate could be 2-3% by that time (it's very very possible). Japan couldn't handle that kind of bond rate on a 10 y/r.

Japan has been doing Abenomics for 20 years..... It is just slightly more aggressive now, and bond vigilantes are trying to bid higher. IN the end bonds are a sure bet.

 

[austrianecon]

Japan has been doing Abenomics for 20 years..... It is just slightly more aggressive now, and bond vigilantes are trying to bid higher. IN the end bonds are a sure bet.

Japan pays out is currently paying out 60 percent of its tax revenues in the form of interest on all this debt and there is nothing to worry about Abenomics? Japanese owners of the their bonds is gonna fall in the next 2 years as inflation hits and they are losing money on bonds since Japan doesn't issue inflation protection. Just watch..

I don't do any business in Japan because of these problems and I think Japan is just a breath away from default. I've never made a bold prediction.. but I think Japan will revalue its currency to stave off default in the next 3 years.

 

[austrianecon]

Japan has been doing Abenomics for 20 years..... It is just slightly more aggressive now, and bond vigilantes are trying to bid higher. IN the end bonds are a sure bet.

Another point.. no it hasn't.. it's gonna increase money supply by $1.5 trillion in 2 years. It's basically gonna add 142 trillion yen outside of deficit spending.

 

[JP Hochbaum]

Japan pays out is currently paying out 60 percent of its tax revenues in the form of interest on all this debt

The beginning of this sentence here shows you know nothing about macroeconomics. That is a mother bleeping huge steal for Japan citizens.

 

[austrianecon]

The beginning of this sentence here shows you know nothing about macroeconomics. That is a mother bleeping huge steal for Japan citizens.

How is it a steal and how would you like me to word it.. 60% of all tax revenue goes to debt service? That's a huge ****ing problem. That's worse then Greece.

 

[Canell]

Umm pay out for 1% on $1 trillion is $100 billion. Payout on $100 billion is $1 billion. So it does matter.

Yes, but the benefit from a $1 trillion is 10 times the benefit from $100 billion. Invested money generate profit.

 

[Canell]

How is it a steal and how would you like me to word it.. 60% of all tax revenue goes to debt service? That's a huge ****ing problem. That's worse then Greece.

Well yeah, in that case the situation is ****** up. They should hyperinflate and wipe out that huge debt.

 

[cpwill]

Yes, but the benefit from a $1 trillion is 10 times the benefit from $100 billion. Invested money generate profit.

Sure.... so long as the plan otherwise was to set the money on fire. Otherwise you have to account for those alternate, non-government uses

 

[cpwill]

Well yeah, in that case the situation is ****** up. They should hyperinflate and wipe out that huge debt.

:lol: yeah. It's not like Japan is dominated by retirees and soon to be retirees who have their entire life-savings in fixed-interest rate securities

 

[austrianecon]

Well yeah, in that case the situation is ****** up. They should hyperinflate and wipe out that huge debt.

You don't wipe out that debt. You just get less purchasing power.

 

[austrianecon]

Yes, but the benefit from a $1 trillion is 10 times the benefit from $100 billion. Invested money generate profit.

You have to actually invest it. Japan doesn't invest it in anything that will prevent it's declining population. When you can't physically grow your economy because demand (people) are dying off quicker then they are replaced you have a problem that is bigger then what's invested. It's about the cost of servicing that debt, the lack of GDP growth, and frankly.. how is a government gonna pay for a population that gets older and older everyday.

Japan is in a downward spiral. No inflating or stimulus can fix it.