Last night the bank of Japan widened its target band for the 10-year bond yield from .25% to .5%. It doesn’t sound like much, but this will have an immediate lasting impact on markets around the world as Japan was the last low yield (cheap money lending) country left after an era of tightening monetary policy.
Bonds are the only way for a country to borrow money. Taxes are pure profit, but a bond needs to be payed back. Its immensely important for the bourgeoisie to keep yields low and prices high.
Starting in 2016 Japan uses something called Yield Curve Control to keep interest rates cheap and ‘official’ inflation low. Since bond yields are inversely correlated with bond prices, the bank of japan turns the money printer on high and buys the bonds itself. This destroys the value of the Yen, this past April the yen hit a 20 year low against the U.S dollar. As a consequence, the BOJ owns more than 50% of the japanese debt market.
It gets worse…
Not only does Japan hold the most debt in the world, it is the biggest owner of American treasury bonds It would be a nightmare for the struggling american bond market if Japan were to liquidate some of its holdings to get some cash flow. This is already happening with China, the 2nd biggest holder, who’s reserves are at a 12 year low Interestingly enough the 3rd biggest holder, the the U.K, has had a disaster of a year in their bond market too. After Truss introduced tax cuts, yields skyrocketed, which caused a run on pension funds (which needed a 65b bailout) and an emergency government intervention to buy bonds.
Japan will soon depart from cheap lending and low inflation, but will see the Yen become a little stronger, which is the only good news for the import dependent country.
tldr. on allah western bond markets are suffering
You explain this clearly. It’s a difficult topic, too!
Could this produce a fire sale of US bonds? Like no one wants to be the last bond holder standing if China and Japan, China and Britain, or Japan and Britain decide it’s time to cash in to shore up their domestic markets.
Reminds me of a story in David Harvey’s Spaces of Global Capitalism (I think that’s the title) of the US decision to jump from 5%–20% base rates overnight (IIRC – and I may very well be misremembering). That did not end well for ordinary people. I know a .25% increase on Japanese bonds is less drastic, but things can spiral quickly. Something to do with a transformation of quantity into quality, I believe.