A few days back there were rumblings of dissatisfaction from the market about Ministry of Finance projected issuance:
Japan’s Bonds Drop a 4th Day After 20-Year Auction Demand Cools – Bloomberg.com
It’s possible that the new government will have to limit its borrowing for “stimulus” spending, as the demand for additional JGB’s is limited.
It seems to me the scenario would work like this:
Ministry of Finance has to raise rates to sell enough debt
Yen spikes short term due to the interest rate differential, crushing exports more
Increased rates mean the increased interest cost can’t be covered by new issuance
BoJ prints yen to cover debt burden; yen collapses as the market flees rapidly devaluing currency
My theory about yen movement is based on the idea that a rise in rates would attract money to Japan short term, but that over time the size of the government debt burden and the higher interest payments would require yen printing.
I could be completely off base.
This just hit Bloomberg: Japan’s Bond Futures Fall as Fujii Signals Debt Supply to Rise – Bloomberg.com
“Japanese bonds fell after Finance Minister Hirohisa Fujii said the government will likely use debt sales to meet a tax revenue shortfall, raising concern increased supply will overwhelm demand.”
