Kuroda Stimulus Drives Government Borrowing Costs to Record Low

Bank of Japan Governor Haruhiko Kuroda’s unexpected expansion of stimulus last week has driven government borrowing costs to an unprecedented low.

An auction of 10-year government debt today resulted in the lowest average yield on record at 0.439 percent, according to Ministry of Finance data. The previous low was 0.470 percent in June 2003. Last month, investors began paying the government to lend at sales of three-month debt for the first time ever, with average yields as low as minus 0.0041 percent.

The BOJ surprised investors last week by raising the annual target for an increase in Japanese government bond holdings by 60 percent. Kuroda reiterated today the central bank will do “whatever it can” to end deflation, a pledge he has made since before embarking on quantitative easing in April last year, and driving yields to record lows.

“This isn’t quite a level where you can buy, but with the BOJ basically snapping up all new issuance, there’s no need to worry about the supply-demand balance,” said Takeo Okuhara, a senior fund manager in Tokyo at Daiwa SB Investments Ltd.

The central bank’s expanded plan to buy 8 trillion yen to 12 trillion yen of JGBs per month gives Kuroda leeway to soak up all of the 10 trillion yen in new bonds that the Ministry of Finance sells in the market each month. The central bank is already the largest single holder of Japan’s bonds, topping insurers at the end of March for the first time ever.

Japan’s 10-year borrowing costs rose 3 1/2 basis points to 0.475 percent at 2:51 p.m. in Tokyo from yesterday, when they reached 0.435 percent for a second day, the lowest since April 5 last year, when the record low of 0.315 percent was set, a day after Kuroda’s initial quantitative easing announcement.

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