Abenomics’ massive monetary stimulus was supposed to depress long-term interest rates to spur economic activity, but the Japanese government bond market has other ideas.
Banks, unable to make money on their Japanese government bonds (JGBs) anymore, have begun sloughing off their holdings, putting upward pressure on yields. Major banks sold off about 11 percent of their holdings in April alone.
Large lenders have hiked their prime rates to make up for the loss of earnings on JGBs, which threatens to price potential borrowers out of the mortgage market, while higher long-term rates could sap corporate Japan’s already anaemic demand for loans.
That puts at risk the very activity Prime Minister Shinzo Abe had intended to spark with the Bank of Japan’s massive quantitative easing (QE) on April 4, when it promised to inject $1.4 trillion into the economy over two years.
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