Rising Japanese bond yields may become the biggest challenge for Prime Minister Shinzo Abe’s campaign to revive the world’s third-biggest economy, a former Bank of Japan (8301) official said.
“The weakest point of Abenomics will be when the economy recovers, up-tick pressure on yields will rise and bonds will be sold,” Eiji Hirano, who was in charge of international affairs at the BOJ from 2002 to 2006, said in an interview this week. “If that happens, the BOJ may not be able to stop rising yields by buying more bonds, and increasing purchases could cause concern that the central bank is financing the government.”
The central bank last week unleashed unprecedented monetary stimulus, planning to double the nation’s monetary base within two years to boost prices and wages and end a deflationary malaise. Abe needs to maintain investor confidence as he struggles with fueling growth while limiting increases in the world’s biggest public debt burden.
Governor Haruhiko Kuroda’s pledge to buy bonds at an unprecedented pace has boosted stocks and pushed the yen to the lowest level in four years.
Ten-year benchmark bond yields were at 0.55 percent in Tokyo at 10:40 a.m. after touching a record low of 0.315 percent on April 5. The yen was at 99.05 per dollar after yesterday touching 99.66, the lowest since May 2009. The Nikkei 225 Stock Average was up 0.7 percent, extending a more than 50 percent rise since mid-November.
“The most important thing for Japan is Abe’s growth strategy but implementation takes a strong cabinet with high approval ratings,” Hirano, 62, executive vice president at Toyota Financial Services Corp. said in Tokyo. The BOJ’s easing will bolster public support for Abe, Hirano said.
Abe won December’s election by pledging to fire “three arrows” to end deflationary torpor: monetary stimulus, fiscal spending and cutting regulation to increase investment and hiring.
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