For how long will Japan’s households support bonds and the yen?
Households’ financial surpluses sharply increased in 2020 and remained high in 2021 due to the Covid pandemic. Most of the surplus continued to go to cash and deposits, but there was a notable increase in funds going to investment trusts (with a large portion invested in foreign equities) in 2021.
Amid rising international yield differentials and a weakening yen, there is market chatter about whether this is the beginning of a structural shift from households’ risk-averse investment style?
What you will learn:
- We believe the sharp rise in 2021 was temporary, driven by the strong performance of US equities and the dollar.
- But Japan’s households will likely continue to increase their foreign portfolio investment in the long term, albeit at a very gradual pace.
- Given the sheer size of household wealth, such a shift will have a profound impact on the yen and the Japanese government bonds (JGBs) market.
Tags:
Related posts
Post
Tariffs and Politics Leave the BoJ Powerless in Japan
The Bank of Japan kept its policy rate at 0.5% at its July meeting. We continue to think the BoJ will exercise caution on rate hikes despite still-high inflation and a recent trade deal with the US.
Find Out More
Post
US-Japan Trade Deal Fails to Shift Japan’s Growth Outlook
We estimate that the US's effective tariff rate on Japanese products is around 17%, in line with our baseline assumption. Lower tariffs on autos are a positive, given the sector's significant contribution to the economy and its broad domestic supporting base
Find Out More
Post
Japan’s Rising Political Instability Will Undermine Fiscal Discipline
The ruling Liberal Democratic party (LDP) and its partner Komeito lost their majority in Japan's upper house elections on July 20. Although Prime Minister Shigeru Ishiba will likely stay to avoid political gridlock, especially to complete tariff negotiations with the US, the political situation has become fluid and could lead to a leadership change or the reshuffling of the coalition.
Find Out More