An expected increase in Japan's borrowing costs threatens to further destabilize global bond markets.
Jean Boivin, head of the BlackRock Investment Institute, warned that a shift in Japan's monetary policy is “an additional force that is not being appreciated.”
Japan has experienced a decade of ultra-low interest rates, leading savers and investors to shift $3.9T of Japanese money to foreign markets.
- Japan's former Deputy Finance Minister Eisuke Sakakibara warned that the Bank of Japan (BOJ) may hike interest rates as soon as October.
- If that's the case, a wave of domestic investors could bring their money back to Japan.
- A rapid reversal in the flow of Japanese capital could threaten financial stability around the world.
- Japanese investors already sold a record amount of foreign bonds in 2022 amid speculation that the Bank of Japan would raise interest rates and thereby boost local bond yields.
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- Japanese investors are the biggest foreign holders of U.S. government bonds.
- UBS estimates that Japanese investors also own about 10% of French sovereign bonds and 19% of Australian debt.
- Global bond markets have already been destabilized by the U.S. Federal Reserve's efforts to tame inflation by rapidly raising interest rates.
