Staying put: Pedestrians cross the street in front of luxury shops in the Ginza shopping district of Tokyo. The Bank of Japan is widely expected to keep its interest rates on hold, although economists expect it will abandon sub-zero rates in 2024. — AFP
TOKYO: Japan Post Insurance Co is joining other major life insurers in holding off from buying domestic sovereign bonds until yields rise, as speculation lingers that the world’s last sub-zero interest rate policy will end later this year.
Fukoku Mutual Life Insurance Co and Meiji Yasuda Life Insurance Co also said last week that they’re avoiding bond purchases for similar reasons. That’s increasing concern that demand will falter at auctions of super-long debt as life insurers are major buyers of these tenors.
The Finance Ministry plans to auction 700 billion yen of the nation’s longest-dated sovereign securities maturing March 2063 on Thursday. The sale will come after demand was weak at offerings of 10-year and 30-year debt this month as lower yields reduced the allure of fixed-income securities.
Japan’s 30-year yield dropped to 1.77% last Friday from a decade high of around 1.9% on Nov 1.
“It is possible to see the 30-year yield rising above 1.8% in the current quarter by pricing in the removal of the negative rate policy,” Hiroyuki Nomura, senior general manager of investment planning department, said in an interview last Friday.
“Should the yield climb to attractive levels, we can move up the schedule for next financial year and accelerate purchases,” he said. “But we are not planning to buy super-long debt at lower yield levels when the nation is about to change the course of monetary policy.”
Local debt yields are facing downward pressure as major overseas monetary authorities including the Federal Reserve and European Central Bank are expected to start cutting interest rates this year.
The Bank of Japan is widely expected to stay on hold at a meeting this week, although most economists forecast it will abandon sub-zero rates in 2024 as inflation remains high.
Consumer prices gained 2.6% on the year in December, staying above the target of 2% since April 2022, according to official data released last Friday.
The central bank will probably scrap negative rates in April, but “I don’t deny such possibility in March”, Nomura said.
A move above zero rate requires the government’s declaration of the end of the deflationary era, which would still take time, he said.
Swap markets currently price in less than a 10% chance of a 25-basis-point rate hike at a January meeting and 44% probability in April. — Bloomberg
