Source: Bloomberg
Author: Ruth Carson, Masaki Kondo
No matter who is sitting on the important position of the Bank of Japan, the most concerned about global bond investors has really unfolded, and it seems unlikely to end quickly, that is, the emergence of Japanese funds to return to the country.
On Friday, an unexpectedly reported that an economist Shikada and men may be nominated as the next President of the Bank of Japan. The yen rose, and the yield of Japanese bonds rose.Still pigeon.If the Bank of Japan has any signs of changes to the eagle policy, it is bound to ignite the upward trend of yields quickly; in addition, Japanese investors have steadily sold overseas bonds and buy domestic bonds. This is a fact in the market.Essence
According to the latest data of the Ministry of Finance and the Japan Securities Industry Association, last year, Japanese investors reduced their holdings of US $ 181 billion in foreign bonds and invested 3.03 trillion yen funds to the domestic government bond market.What global investors need to worry about is that if Shishida really serves as the president and cancels the upper limit of yields, there will be more than $ 20 trillion foreign bonds that may face the fate of being sold.
"Our prediction is that this year's Japanese investment portfolio funds will continue to return from overseas domestic bond markets," Morgan Chase's Benjamin Shaatil wrote in a recent report."We believe that this change to a certain extent is because investors believe that the continuous rise in prices and wages will further promote the relaxation rate curve control policy, and the Bank of Japan to increase its tolerance for rising domestic yields." The Japanese government will nominate Kuroda Dongyan on Tuesday, and global bond investors will be strictly waiting.
In December last year, the Bank of Japan fine -tuned the upper and lower limits of 10 -year Treasury bond yields, which caused impact on the global market. U.S. Treasury bonds fell. From US stock futures to Australian dollars to gold, all types of assets were affected.At present, Japanese investors hold more than $ 1 trillion in US Treasury bonds, as well as a large number of bonds in the Netherlands, France, Australia and Britain.
If Shimoda changes the policy and promotes the higher yield of Japan, then the relatively attractiveness of daily debt will inevitably attract the country's large insurance companies and pension funds to accelerate the country.But even if he keeps policy adjustment at the lowest level, he may reproduce the pressure faced by the Japanese yen last year and push up the expensive hedge cost of the yen. This is another key catalyst that Japanese investors sell overseas bonds last year.
In the case where the cost of hedging is still high, even if Japan sets up the 10-year Treasury yield at 0.5%, the attractiveness to Japanese fund companies will be more than 1.3%after the U.SThe yield is more attractive.
"When they finally let go of interest rates, Japanese institutions waiting for higher returns may flood to Japan's Treasury," said Amir Anvarzadeh, a strategic strategist in Singapore.He has been tracking the Japanese market for 30 years.
In VANDA Research, in the view of London strategist Viraj Patel, the global bond market may be able to withstand another round of policy adjustment of the Bank of Japan, but the rise in Japan's inflation may lead to the sudden exit of the yield curve control policy.
"The Bank of Japan is about to commit the same policy errors as the Federal Reserve 12 months ago, that is," inflation is temporary ', "he said."We will make the normalization of the Japanese policy earlier instead of the layout later, and the possibility of occurring before the April meeting that has attracted much attention is not small."
