{"text":[[{"start":7.5,"text":"The writer is a senior economist at JPMorgan"}],[{"start":12.05,"text":"Over the past few weeks, Japan’s government bond yields have surged to highs last seen in the 1990s — raising eyebrows both in Tokyo and elsewhere in the world. Ostensibly, this latest jump was a reaction to the mulling of a temporary consumption tax holiday on food. Given the relentless rise in the cost of staples — rice prices have doubled — the tax cut strikes a chord in an economy where the cost of living has barely changed in a generation."}],[{"start":41.7,"text":"The food tax holiday could lead to an annual fall in tax revenues of around 1 per cent of GDP, on our estimates. Manageable in isolation but challenging in the context of potential social security contribution cuts, defence spending increases and other pro-growth policies. As other governments have found to their peril, lowering consumption taxes is the easy part; putting them back up is not. By pushing bond yields higher, markets are probably right to question whether any cut would indeed be temporary."}],[{"start":76.6,"text":"Over time, Japan’s elevated gross government debt level means that rising rates will necessitate higher interest repayments. Japan thus faces a delicate balancing act between managing rising interest expenses and keeping spending taps on — as the price action in the bond market has shown. The Bank of Japan’s exit from years of ultra-easy policy risks sending government bond yields higher still, in our view."}],[{"start":null,"text":"
"}],[{"start":105.17999999999999,"text":"To be sure, the BoJ’s pace of policy rate hikes has been glacial. It has taken governor Kazuo Ueda the best part of two years to hike to 0.75 percentage points (albeit the highest since the 1990s). But for all the feet-dragging on rate rises, the BoJ has been swift to unwind another of its legacy policies."}],[{"start":129.70999999999998,"text":"During years of quantitative easing, the Bank amassed a vast quantity of JGBs in the hope of loosening monetary conditions. At a surprisingly sharp pace, it is now allowing some of these bond holdings to mature without repurchasing them, effectively transferring them back to private-sector investors — quantitative tightening in all but name."}],[{"start":null,"text":""}],[{"start":154.78999999999996,"text":"For a bond market that until recently was almost entirely controlled (and around 50 per cent owned) by the central bank, this marks an important inflection. The BoJ’s own roadmap suggests its balance sheet will shrink by another 13 per cent of GDP this year, on our estimates, as fewer bonds are bought to replace those that are maturing. This represents a sharp rundown for any major central bank; it is even more notable relative to Ueda’s cautious pace of rate rises. The point here is that QT means a growing share of government debt to be absorbed by the private sector, beyond factoring in any potential rise in spending."}],[{"start":196.76999999999995,"text":"Of course, the BoJ could ease the pace of its balance sheet rundown in response to rising yields. It could ramp up its bond purchases once again, easing the burden on commercial banks, lifers and pension funds to absorb government debt supply. But if such adjustments came in response to market pressure and were perceived as a signal of fiscal matters dominating monetary policy — or indeed as debt monetisation — we suspect the long-term casualty would be the yen."}],[{"start":null,"text":""}],[{"start":228.71999999999994,"text":"Against this backdrop, speculation that Japan could work with the US to prop up the yen has halted the currency’s slide, at least for now. Treasury secretary Scott Bessent has rejected the possibility of dollar sales to support the yen. But the New York Federal Reserve has been reported to have carried out a recent “rate check” — a move to check the prevailing market exchange rate, typically the precursor to currency intervention. If that had been carried out in consultation with Japanese authorities, it would be a significant, and unusual, marker."}],[{"start":264.60999999999996,"text":"Ahead of Japan’s elections this weekend, the yen’s retreat from the optically uncomfortable 160 level against the dollar will be welcome news. But outright currency intervention, if it is forthcoming, risks complicating the picture. Intervention could raise speculation (rightly or wrongly) that Japan’s Ministry of Finance might sell its holdings of US Treasuries to finance yen purchases. "}],[{"start":292.9,"text":"This might bolster the yen and calm the JGB market, if only temporarily. But it could come at the cost of pushing US Treasury yields higher, an outcome unlikely acceptable to the US administration. Conversely, sustained increases in JGB yields — if they lure a repatriation of Japanese capital out of US debt markets back to Japan — could have a similar “spillover” effect. What begins in Tokyo may not end in Tokyo."}],[{"start":332.96999999999997,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1770158834_9622.mp3"}