Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: MythMan who wrote (246716)	6/21/2003 8:38:59 AM
From: Pogeu Mahone	Respond to of 436258

June 21, 2003 Swings in the Bond Market Add to the Anxiety in Japan By KEN BELSON OKYO, June 20 — After a decade of hearing the hiss of air leaking out of the Japanese stock market, investors here are now worrying about a popping sound they discern in the nation's bond market. Bond yields here are improbably low, and have been so since the Bank of Japan pushed short-term interest rates down to 0.5 percent in 1995; today, the bank's monetary policy is so wide open that short-term rates are just about zero. Low bond yields mean high bond prices, and though investors have long suspected a bubble in the market, bonds have rallied almost continuously for years. There have been periodic scares, when prices dip suddenly and yields rise, throwing a brief scare into the lawmakers and executives who depend on low interest rates to help them keep refinancing the huge public and private debts. Each time, though, the market quickly snapped back. Investors experienced another such scare this week when the yield on the benchmark 10-year bond, after touching a historic low of 0.43 percent last week, rose for five straight days to reach 0.73 percent. The market reversed again today, but the episode has sparked another round of debate about deflation, the economy and Japan's bloated debt. How to explain the bond market's behavior? Analysts and market watchers offer a number of opinions — so many and so varied, in fact, that many investors despair of getting a clear picture of what is going on, itself a worrying sign. The conventional wisdom is that across the economy, there is no end to deflation in sight, leaving the Bank of Japan little choice but to hold interest rates near zero indefinitely. But the end of the principal fighting in Iraq and some recent hints that the global economy is mending have put new impetus into stock prices: the Nikkei 225 index is up 19.9 percent since April 28. Some analysts see in that the cause of the bond blip: investors selling bonds to buy stocks. Other analysts say it has more to do with the recent government bailout of Resona Holdings, the country's fifth-largest banking group. The government plans to spend 2 trillion yen ($16.7 billion) propping up Resona. While some analysts applaud the government's decision to fix Resona, others worry about the cost of applying the same approach to other struggling banks. Then there are analysts who say it is all a simple matter of bond yields having fallen too low to justify buying more of them. To accept yields of less than 0.5 percent, investors have to believe that Japan will be mired in an economic funk well into the next decade — possible but doubtful, some analysts said. "Bonds are fundamentally a bad value at 50 basis points," said Richard Jerram, economist at ING Financial Markets in Tokyo, referring to hundredths of a percentage point. "It's hard to believe yields should be this low when the government is going to issue so much new debt." Curiously, some in the government are happy to see bond yields tick upward. With Japan's public debt expected to grow to about 140 percent of its gross domestic product by next March, some politicians say the long decline in interest rates has made it too easy for the government to blithely borrow to pay for wasteful make-work public projects while postponing spending cuts and deregulation moves that would be less popular with constituents but would do more long-term good. Already, one-fifth of the total national budget is devoted to debt payments. Heizo Takenaka, the government's chief economist and financial regulator, said today that the week's spike in bond yields was "an important signal from the market that Japan must tackle its budget deficit." The governor of the Bank of Japan, Toshihiko Fukui, has issued similar warnings, partly because the central bank now holds huge amounts of government bonds and could lose trillions of yen if the bond market were to collapse suddenly instead of declining in an orderly way. Even with all the worries, though, many investors still see government bonds as the only safe haven for their capital. The stock market remains volatile despite its recent gains, they reason, but no one thinks the government is likely to default on its obligations. "It's the same thing we've been seeing for years: Where else do you put your money?" said Marshall Gittler, a strategist at Deutsche Bank. Copyright 2003 The New York Times Company \| Home \| Privacy Policy \| Search \| Corrections \| Help \| Back to Top