When Financial Bubbles Are Hard to Pop
In Japan, China and the US, some mindsets persist despite changing policy decisions.
Despite appearing unsustainable, financial bubbles can last a surprisingly long time. Consider three: Japanese government bonds, the US stock market and Chinese real estate.
Since September 2016, the Bank of Japan has steadfastly vowed to keep its 10-year government bond yield near zero, even as central banks in the US, EU and UK started raising rates. Bond traders are getting vocal, saying the BOJ will have to raise rates eventually. Consumer price inflation has been above its target for nine months, and with the central bank owning half of Japan’s sovereign debt, traders complain that the market isn’t functioning properly, according to the bank’s latest survey. But the BOJ stood firm. In the first three weeks of January, the bank spent a record $169 billion buying government bonds to maintain its rate policy.