The Bank of Japan was able to lower Japanese government bond yields after an unexpected spike earlier this year (see post). The 10yr JGB is now yielding around 70bp, corresponding to about minus one percent of real yield.
The central bank continues to control this market, accelerating bond purchases since the new governor took the helm. Sooner or later that forces yields lower.
The goal is to make cash and government bonds so unattractive (negative real yield) that investors do something else with their money – hopefully stimulating growth in the process. The effectiveness of this program however is yet to be demonstrated. The recent economic gains were mostly the result of a weaker yen instead of more spending and investment. And the type of inflation generated by BOJ’s policy is hardly what the central bank had in mind (see post).
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