The last Japanese in the jungle. The Bank of Japan does not raise rates, but controls the Yen. Risks to… US debt
The Japanese central bank remains almost the only one to defend expansionary policies. The Bank of Japan leaves its benchmark short-term interest rate unchanged at -0.1% and its ten-year bond yields around 0% at its June meeting, with a vote of 8-1, as widely expected. . The board also said it will offer to buy unlimited amounts of bonds to defend an implied ceiling of 0.25% each market day, repeating the guidance on market operations provided in April. Here is a graph with the evolution of the Japanese reference rate
Policy makers believed Japan's economy was on a recovery, despite some weakness due to the impact of COVID-19 and soaring commodity prices. Private consumption recovered, especially in the service sector, while exports and industrial production continued to grow. Evidently, the real economy is more important to the BoJ than financial speculation. On the price front, the y / y rate of change in the CPI (all items minus fresh food similar to the core in the US) is expected to be around 2%, due to high energy and food prices. Inflation was at 2.5% in April and is expected to have a similar trend in May.
With this inflation the BoJ believes that everything is still under control. The only concern comes from the Yen which went from 110 on the dollar in July 2021 to 115 at the end of the year to 135 in the past few days. It must be said that, after the announcement, the Yen, which had stabilized at 132, grew, but without beating the highs of the previous days.
The only Japanese concern is the exchange. Government bonds are protected by the central bank at a rate of 0.25% and the latter buys huge quantities to protect yields and counter a huge speculation that wants to blow up yen and yields . In reality, this move risks putting the US debt in difficulty, not the Japanese one.
Japan is among the largest holders of US government bonds, with $ 1303 billion worth of bonds in its pocket, followed by China with 1061 and the United Kingdom with 608. If the Yen is devalued, it is less convenient for large Japanese institutional investors to buy. dollar securities, which already have a strong negative real yield, but the Japanese one remains cheaper, which maintains an always negative but better real yield. To give an idea, the real negative return of the US is equal to -5.25%, that of the Japanese is -2.25%, always negative. and if US bonds cost more, there is less interest in buying them. US speculators are practically damaging their country's largest source of funding, among other things, failing to do so for now.
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The article The last Japanese in the jungle. The Bank of Japan does not raise rates, but controls the Yen. Risks for the… US debt comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/lultimo-giapponese-nella-giungla-la-bank-of-japan-non-aumenta-i-tassi-ma-controlla-lo-yen-rischi-per-il-debito-usa/ on Fri, 17 Jun 2022 09:00:26 +0000.