Japan’s borrowing costs soar to 30-year high on debt fears

{"text":[[{"start":9.45,"text":"Japan’s borrowing costs have shot to their highest in 30 years as investors fret over the tumbling yen and the effect of a $2tn long-term spending plan on the country’s massive debts."}],[{"start":20.75,"text":"A bruising sell-off in Japanese government bonds this year pushed the country’s benchmark 10-year yield to 2.87 per cent on Wednesday, its highest since 1996. "}],[{"start":33.05,"text":"Investors say the policies of Prime Minister Sanae Takaichi — centred on a $2.3tn spending plan spread over 14 years — are stoking the sell-off in long-term debt. Some also worry that the Bank of Japan, which raised interest rates to 1 per cent last month, will fall behind the curve and let inflation rise above its 2 per cent target. "}],[{"start":54.5,"text":"“The combination of a Bank of Japan that remains cautious on further [interest rate] tightening, ongoing yen weakness and concerns around fiscal policy has left the long end of the JGB curve especially vulnerable,” said Alex Everett, an investment director at Aberdeen Investments. "}],[{"start":72.45,"text":"Market concern over long-term risks is reflected in the premium that investors are charging Japan to borrow for 10 years rather than two, which has risen from less than 1 percentage point in April to 1.4 percentage points today. This premium has recently been flat or falling in other big bond markets such as the US and Germany."}],[{"start":null,"text":"

"}],[{"start":93.9,"text":"The surge in Japan’s borrowing costs, investors warn, is putting pressure on its significant sovereign debt, which is equivalent to more than 200 per cent of GDP. The country’s 30-year yield has surged above 4 per cent this year, and is hovering close to the record 4.2 per cent intraday high in May."}],[{"start":113.15,"text":"Investors have been happy to snap up Japanese debt over many years in which the BoJ kept its policy interest rate negative and bought vast amounts of government bonds — but this picture is changing as monetary policy tightens."}],[{"start":127.2,"text":"“The scenario playing out reflects Japan having built the world’s largest [sovereign] debt pile on the assumption that money would stay free forever,” said Stephen Jones, chief investment officer at Aegon Asset Management. "}],[{"start":140.4,"text":"“The market is now aggressively withdrawing that assumption . . . Tokyo must refinance the past and fund the future at prices it hasn’t paid in a generation.”"}],[{"start":149.9,"text":"Japan-watchers are concerned that the government’s borrowing costs could start to rise more quickly than its revenues to the point that they worsen its debt dynamics, said Stephen Spratt, a rates strategist at Société Générale. "}],[{"start":163.35,"text":"“We think that the tipping point is [a 10-year yield] somewhere above 3 per cent, but people will start to ask questions when it gets [to] 3 per cent,” he added. Yields move inversely to prices."}],[{"start":null,"text":""}],[{"start":177.29999999999998,"text":"Fund managers have been struck this year by Japan’s currency and its government bond prices sliding together — the two often move in opposite directions on expectations of interest rates. The yen hit a 40-year low last month despite the BoJ’s repeated interventions to support the currency in recent months. Inflation edged up to 1.5 per cent ahead of last month’s BoJ meeting."}],[{"start":200.2,"text":"“Inflation is no longer negligible, government borrowing remains substantial, and the BoJ is still normalising policy,” said Fraser Lundie, head of fixed income at Aviva Investors. “That combination has made the market more sensitive to fiscal dynamics than it has been for many years.”"}],[{"start":219,"text":"Yields on JGBs had been kept near or below zero by years of asset purchases and low policy interest rates in Japan’s era of deflation, a period that left the BoJ owning a huge swath of the sovereign bond market. "}],[{"start":233.95,"text":"Unlike other big central banks such as the Bank of England and the Federal Reserve, the BoJ continues to buy bonds. This has helped keep Japan’s significant government debts sustainable. "}],[{"start":244.85,"text":"Japan’s net debts, once its substantial assets are taken into account, are closer to 100 per cent of GDP, which some point to as easing debt concerns. "}],[{"start":255.15,"text":"Nevertheless, in a sign of authorities’ responsiveness to the bond market sell-off, the BoJ said at its meeting last month that it would stop reducing its monthly bond purchases next year, instead levelling off at around ¥2tn ($12.5bn) a month. "}],[{"start":271.2,"text":"Tomohiro Ota, senior economist at Goldman Sachs, warned that Japan could get into a “vicious cycle” in which fiscal concerns drive up interest payments, exacerbating the fiscal squeeze."}],[{"start":282.3,"text":"Others worry Japan is succumbing to a form of so-called fiscal dominance, in which policymakers hold rates artificially low, allowing inflation to eat into the government’s debts. MUFG’s Lee Hardman said the BoJ’s caution on rate rises was fuelling “the perception” of such a strategy."}],[{"start":300.45,"text":"Some institutional investors are concerned that a steep rise in JGB yields that drags in capital from other sovereign bond markets could fuel a global move higher in yields — tightening the squeeze in other countries such as the UK where long-term borrowing costs hit their highest in decades earlier this year."}],[{"start":319.59999999999997,"text":"“That’s the risk, that it creates a global sell-off,” said Ludovic Subran, chief investment officer at Germany’s Allianz. This was “one more layer” of potential stress in global markets, he added."}],[{"start":341.54999999999995,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1783496328_1871.mp3"}