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Why did Japan say they want 2% inflation when they are panicking with 10y bonds @ 1%?
- Thread starter Newmoney24
- Start date
The answer is simple: Because an inflation target of 2% does not mean that short-rates will instantaneously jump to 2% and with that push up long-term rates, too.
You can already see lots of selling in JGBs by pension funds, banks, and other long-term JGB investors. Most of the proceeds are invested in foreign bonds but one can also witness a pickup in Japanese investments in real-estate and take over activity overseas. Once the usual suspects of JGB holdings have sufficiently diversified those same players will feel a lot more relaxed about the threat of inflation pickup in the future.
The one holding the bag is BOJ and higher funding costs for Japan but Japanese politicians, economists and other self-proclaimed experts hold steadfastly to the erroneous belief that Japan can fund it self entirely domestically.
The panic will set in when inflation really picks up and if/when it turns out that the big gamble by the BOJ will not play out, which is that growth in income and gdp will overshadow the higher funding costs that Japan will face with higher inflation. I am in the belief that Kyle Bass is spot on with his analysis but timing like always is everything.
You can already see lots of selling in JGBs by pension funds, banks, and other long-term JGB investors. Most of the proceeds are invested in foreign bonds but one can also witness a pickup in Japanese investments in real-estate and take over activity overseas. Once the usual suspects of JGB holdings have sufficiently diversified those same players will feel a lot more relaxed about the threat of inflation pickup in the future.
The one holding the bag is BOJ and higher funding costs for Japan but Japanese politicians, economists and other self-proclaimed experts hold steadfastly to the erroneous belief that Japan can fund it self entirely domestically.
The panic will set in when inflation really picks up and if/when it turns out that the big gamble by the BOJ will not play out, which is that growth in income and gdp will overshadow the higher funding costs that Japan will face with higher inflation. I am in the belief that Kyle Bass is spot on with his analysis but timing like always is everything.
Quote from Newmoney24:
I'm confused because of Kurado's recent announcement about the 2% inflation goal,
well a 2% inflation goal, would thereby cause bond yields TO go up if indeed they got 2% inflation,
this is pretty obvious, so why are the freaking out when 10 year rates go above 0.80% when they know really well themselves that the yield would have to go to 2% or more just to break even?
--
it seems they're screwed in the long term anyway, but what's going on/ what are they really trying to do?
Things you do to increase inflation: http://www.japantoday.com/category/...p-growth-could-slow-to-1-after-sales-tax-hike
An article on this subject:
http://www.zerohedge.com/news/2013-08-08/bnp-warns-japanese-bonds-have-lost-their-ability-price-risk
http://www.zerohedge.com/news/2013-08-08/bnp-warns-japanese-bonds-have-lost-their-ability-price-risk
Not very exciting news for the Japanese economy :
http://www.reuters.com/article/2013/08/12/markets-forex-idUSL4N0GC0N820130812
Another devaluation of Jpy will be necessary.
http://www.reuters.com/article/2013/08/12/markets-forex-idUSL4N0GC0N820130812
Another devaluation of Jpy will be necessary.