The Bank of Japan (the central bank) unexpectedly relaxed the yield curve control (YCC) policy on Tuesday (20th), shocking global financial markets, and a small step by the world’s largest creditor country may bring regarding major changes in global capital flows.
Japan is the world’s largest creditor nation, which means a lot of cash may be waiting to be repatriated to capture higher local returns.Following the Bank of Japan’s announcement, theJPYThe substantial appreciation is one of the evidences.
After the Bank of Japan adjusts its policy, it will raise domestic interest rates, attracting Japanese investors to withdraw from the U.S. government bond market and return to the Japanese market. The bonds of the United States, Australia, France and other countries face the greatest risks.
That might be a real trouble ahead: Japan’s net international investment position, the size of its holdings abroad and the amount of Japanese assets held by foreigners, is more than $3 trillion apart.
Data released by the U.S. Treasury Department earlier this month showed that Japan has reduced its holdings of U.S. Treasuries for the fourth consecutive month. minimum standard.
Analysts at Wells Fargo said the Bank of Japan’s move this week is bound to further reduce the attractiveness of foreign debt, such as U.S. Treasuries, to Japanese investors.
Wells Fargo analysts Erik Nelson and Jack Boswell said in a report that Japanese investors have been net sellers of foreign bonds this year, and the Bank of Japan’s decision on Tuesday will only reinforce that tendency.
Brian Svendahl, senior portfolio manager for U.S. fixed income at RBC Global Asset Management, said: “The Bank of Japan’s move may slow investor demand for U.S. Treasuries and other U.S. bonds to a certain extent, but to me, it’s a big deal.” It’s more of a long-term story than a short-term shock.”
