Long-term Bonds Anxiety

It is more difficult for a gambler to retreat from a big game than to participate in it. The Bank of Japan judged that it was not necessary to take additional action for regulating the interest rate of long-term bonds. Tokyo Stock Market was so disappointed that Nikkel Average dropped by ¥200 on Tuesday. Although the economic policy of Prime Minister, Shinzo Abe, had been positively accepted by market until last May, Japanese economy might be on the turning point to possible disastrous failure.

The Policy Decision Meeting of BOJ on Tuesday decided that it would maintain current monetary policy, which was expanding monetary basis by ¥60-70 trillion a year. It also avoided extending the period of low-interest money supply operation from one year to the longer. On the assessment of situation of economy, it raised from “recovering” to “recovers.”

At the press conference after the meeting, BOJ Governor, Haruhiko Kuroda, admitted that they discussed additional measures for restricting the rise of long-term interest, and took no action of it as a result. “Fluctuation is getting ceased and we assessed that additional measures are not needed. We keep on making effort to minimize the fluctuation,” told Kuroda. He showed his feeling of satisfaction on the effect of major monetary easing policy introduced in April.

The real economy is showing the signs of distortive effects by the policy of BOJ. After the policy introduced, seventy percent of all the national bonds have been bought by BOJ, reducing the room for private sectors to join. It has been causing the inflexibility of bonds market. Although Kuroda was confident in the power of BOJ, saying that the bank could regulate the interest by flexible operation of buying national bonds, the market has been seeing higher interest of long-term bonds.

Actually, stock prices of related industries, represented by real estate or private banks, has been dropped steeper than manufactures or electric power companies current weeks. It shows that stock market is getting more and more skeptical about the future of long-term debts. This tendency existed behind the decline of stock market on Tuesday.

For Abe it is more important that Japanese economy maintains its positive tendency until the end of July, when the election of the House of Councillors will be held. If the negative element appears, his ambition of taking majority in both houses of the Diet will be in jeopardy. “We are confident in the staffs of BOJ headed by Kuroda,” told the Chief Cabinet Secretary, Yoshihide Suga, at the press conference on Tuesday. But the fact is both Abe and Kuroda has nothing to handle long-term bonds.