Abenomics Tendon

The Chairman of the Bank of Japan, Haruhiko Kuroda, on Wednesday admitted that the rate of long-term bonds, different from short-term bonds, could not be controlled. Although long-term bonds rate had been declining after Prime Minister, Shinzo Abe, inaugurated last December, it shifted to getting up after BoJ introduced the greatest monetary easing policy in early April. In the government possessing huge amount of deficit, long-term bonds rate is Achilles tendon of Abe’s economic policy.

The rate of interest for ten-year governmental bonds was raised from 0.315% on the day after new monetary policy was introduced to 0.920% on Wednesday when BoJ decided to maintain that policy at regular policy deciding meeting. In the morning of Thursday, the rate marked 1%, the highest rate in these seven months.

The reason is basically thought to be shift of money from bonds to stocks, following the positive effect of economic policy on stock market. But, it is recently worried that BoJ policy of buying large amount of national bonds has made investors negative in bonds market, and has encouraged private banks selling long-term bonds.

At the press conference after the meeting, Kuroda emphasized that the bank would be more careful in selling them. “We will review the way buying national debts and introduce flexible market operation. We can reduce the amount of buying debts by increasing the frequency,” told Kuroda.

Optimism and self-confident attitude has been diminished from Kuroda’s face. “We have to avoid excessive volatility,” he stressed in the conference. “It is not controllable like short-term bonds,” he also explained about uncontrollability of long-term bonds rate. He denied the perspectives worrying the impact of long-term bonds rate on real economics.

However, the rate of interest for housing loans has already been raised these months. Major private banks raised them by 0.05% at the beginning of May. More hike is expected next month. The more crucial is the impact on industries. Private banks are raising the interest rate of loans for industries. Companies are negative for delivering of debenture loans, because their higher interest rate may increase the cost. As the result, it is getting difficult for industries to procure money.

If this trend is connecting to the incredibility for national bonds, the rise of long-term bonds rate will be accelerated. As long as Abe administration is keeping its policy of positive finance causing more deficits, Abenomics will be annoyed by the possibility of great catastrophe.