Wednesday, April 22, 2009

The Debts of the Lenders: Maintaining ZIRP Through JGB Corporate Purchases

Japan has been in a ZIRP driven economy for years now. So how do govt policymakers and corporate heads (they are often one and the same in the zaibatsu driven world of Japanese corporate politics) intend to maintain low rates at a time of massive fiscal stimulus?

Simple. Continue maintaining the paper shuffling game of govt bond issuance. JGBs or Japanese government bonds have historically been soaked up by the domestic market so they are not at risk of raising yields in the face of competition from the Eurozone or even other export driven economies. But even households are being hard pressed to maintain demand in the face of such relentless supply pressure.

So Tokyo's response has been to distribute corporate welfare in the form of bond sales. While this policy is not overtly stated you can read between the lines here. Perhaps Washington DC will enact something similar in a modification of its TARP program (after all US bureaucrats have already copied virtually everything about the deflationary response model from Japan).

=DJ Nippon Life To Put Most Of Y1T New Funds In Yen Bonds FY09


TOKYO (Dow Jones)--Nippon Life Insurance Co. plans to allocate most of the about Y1 trillion it has in new funds to yen-denominated bonds, especially in the superlong zone, during the fiscal year started April 1.

"We plan to allocate a large part of the new funds to yen-interest-rate assets, which provide stable income gains," said Tomiji Akabayashi, general manager of Nippon Life's finance and investment planning department.

"We'll limit the distribution of funds into risk assets other than yen bonds, and thoroughly monitor the effectiveness of our fund management plan around the clock," he added.

Among yen-denominated debt, Nippon Life mainly invest in 20-year Japanese government bonds, as well as 30-year JGBs, Akabayashi said.

Insurers usually manage their portfolios so that the life of the assets they hold matches the duration of their liabilities.

Nippon Life held Y18.6 trillion worth of domestic bonds at the end of March, an increase of Y1 trillion from the previous fiscal year. With Y44 trillion in assets in its general account, Nippon Life is Japan's largest life insurer.

Market participants closely monitor life insurers' fund allocation plans because the massive amounts of money the insurers manage can sway the market.


Blog Archive