Government bonds a 'potential time bomb'
Sunday 02 May 1999
Nara, and those like him, may be about to knock the wind out of a three- month rebound in Japan's Y285,000bn government bond market. About Y100,000 in postal time deposits, money tapped by the Finance Ministry to fund state projects and buy bonds, mature in 2001. If enough people like Nara take money out, the Ministry may have to sell bonds to raise money, dragging down prices and pushing up yields.
This is "a potential time bomb for the bond market", said Akitsugu Bando, a fund manager at Okasan Capital Management.
Cracks started appearing in Japan's public financing monolith last year. In November, the Finance Ministry said it would sell 23 per cent more bonds this year and stop outright bond purchases in the secondary market. Only after the yield on 10-year bonds rose to a 21-month high of 2.505 per cent on 3 February did the ministry return to the secondary market.
With a combination of buying bonds and driving overnight lending rates down to zero, the government brought yields down to 1.405 per cent. However, it's not clear how long it can keep up those purchases amid calls for fresh spending to revive the economy, which shrank an estimated 2.2 per cent last year. A flood of cash from its postal savings pool would exaggerate the government's funding shortfall.
"The fate of this pool of savings is of crucial importance for the Japanese economy and the behaviour of financial assets in the global market place," said Tim Bond, strategist at Barclays Capital. "Yields on all Japanese financial assets will rise sharply in 2000-2001."
A sharp rise in yields could delay economic recovery since the yield is a reference to set rates on everything from corporate bonds to mortgages.
The link between the postal savings and bond markets is the Finance Ministry's Trust Fund Bureau. For almost 15 years the bureau's postal savings holdings allowed it to control the level of interest rates by holding 30 to 40 per cent of the total outstanding amount of government bonds.
Analysts are sceptical of the Post Office's ability to retain the deposits. Since Japan let banks and insurers join brokerages in selling mutual funds on 1 December, post office deposit holders have been targeted by aggressive marketing of investment funds promising far higher returns.
Olympic diver has made his modelling debut for Adidas
- 2 Scottish independence: Learn from Quebec's mistakes and beware of promises. Vote Yes.
- 3 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 4 Revealed after 75 years of secrecy: 'Fifi' the glamorous WW2 special agent who tested British spies' resolve
- 5 Hitler’s former food taster reveals the horrors of the Wolf’s Lair
Thailand beach murders: Thai PM suggests 'attractive' female tourists cannot expect to be safe wearing bikinis
Scottish independence: Final opinion polls show undecided voters could swing result either way
Isis release 'Flames of War' video warning Obama of attacks troops could face in Iraq
Hitler’s former food taster reveals the horrors of the Wolf’s Lair
Alan Henning: British Muslim leaders unite to urge Isis to release UK hostage
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
Scottish independence referendum: A nation divided against itself
The political class is doing what Hitler couldn’t – destroying Britain
Scottish independence: Nationalist leader Jim Sillars threatens pro-union companies with 'day of reckoning' after independence
Portuguese academic says British are 'filthy, violent and drunk'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
iJobs Money & Business
£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...
£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...
£20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...
£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...