Japanese bonds face overnight instability

Following an announcement of unprecedented monetary stimulus, Japanese government bonds have retraced their fall to record lows. The 10-year yield climbed 18 basis points to 0.615 per cent in the Japanese afternoon session after dropping by 12 basis points in the morning to a record low of 0.315 per cent. Chief cabinet secretary Yoshihide Suga has said that is closely watching bond market movements. Andrew Sentance on Japan's radical QE package:

The slow growth of the Japanese economy is largely structural, reflecting a shrinking workforce, strong competition from low-cost Asian economies in manufacturing, and weak productivity growth in the services sector. These problems could be addressed by making the labour market more flexible (in particular encouraging more women to participate in the workforce), and deregulating business so it can restructure and become more efficient – particularly in retail and other service sector activities.

The danger for Japan is that this latest round of QE is another reason to delay these important structural reforms. If that is the case, it will be bad for growth over the longer term.

(Full article)

JGBs = Just Gone Bananas

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