Japan stimulus sends shivers through its bond market
By Sunny Oh
Japanese P.M. Shinzo Abe unrolled a $17.8 billion fiscal stimulus on Monday
Investors have shed their holdings of Japanese government paper since Japanese Prime Minister Shinzo Abe unrolled his $17.8 billion stimulus plan on Monday, on concerns that the new package would hurt the government's finances.
The yield for the Japanese 10-year government bond, or JGB, has risen more than 4 basis points since Monday to 0.073%, its highest levels since early August.
Abe said the government would divert the revenues from a planned consumption-tax hike on the fiscal package, instead of clearing its mountain of debt as initially planned. Most of the spending will be funneled into child care and education. Analysts feel the move could weigh on the government's finances and even go so far as to earn a downgrade from its credit-rating agencies.
"The credit-rating agencies have not reviewed Japan's fiscal stability in a long time. We suspect the announcement of this latest scheme to juice up fiscal spending will trigger a new round of reviews, and some criticism," wrote Carl Weinberg, chief economist for High Frequency Economics.
Yet Weinberg pointed out lower oil prices and lower coupons on JGBs have eased the task of servicing the country's hefty debts. Japan's Ministry of Finance reported the ratio of the country's government debt to its annual GDP stood at around 250% in 2016, making the Japanese government one of the most indebted in the world, in part due to its aging population.
Ratings agencies in Japan say Abe's fiscal package could actually bolster the island nation's creditworthiness, if the investment in education leads to higher growth down the road, according to the Nikkei Asian Review (according%20to%20a%20report%20in%20the%20Nikkei%20Asian%20Review,). Economies in a period of expansion tend to see a decline in their debt as a proportion of their annual GDP.