BoJ Governor remains confident on government bonds
(29 May 2013 – Japan) Bank of Japan (BoJ) Governor Haruhiko Kuroda has shrugged off concerns of the recent spike in bond prices, saying analysis by the central bank last month showed the country can withstand an increase in market interest rates of as much as 3 percent.
Japan’s sharemarket lost 7 percent last Thursday, following weak economic data from China and on fears the falling Japanese government bond prices would undermine the government’s economic strategy to stimulate the market.
Kuroda said that BoJ estimates in April showed that a 1 to 3 percentage point rise in interest rates would not cause problems for Japan's financial system, as long as it was accompanied by economic improvements, since a recovery would lead to increased lending and help to improve banks' earnings.
'Japan's financial system as a whole seems to possess sufficient resilience against such shocks as a rise in interest rates and deterioration in economic conditions,' Kuroda said.
Kuroda and Japan's Prime Minister, Shinzo Abe, have launched a vast stimulus program, promising in April to inject $US1.4 trillion (A$1.45 trillion) into the economy in less than two years through quantitative easing, to jolt the Japanese economy out of a 15-year deflationary malaise and lift inflation to 2 percent.
The policy triggered a huge sharemarket rally. But a surge in bond yields, which means bond prices have fallen, has threatened to make government borrowing expensive.
Domestic banks could be forced to take losses on their large holdings of Japanese government debt.
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