12 December 2022 | Other

Japan's debt market could be under pressure in 2023

According to investors, Japan will face a lack of liquidity in its debt market next year. Neither reductions in large-scale bond purchases nor even adjustments to yield-curve control will be able to prevent this problem.

Mitsubishi UFJ Kokusai Asset Management Co said that only a precise review of the entire policy system easing could improve the situation with liquidity. According to the data of the Bank of Japan survey, investors' attitude to the functioning of the Japanese bond market has fallen to a record low level.

The BOJ has increased bond purchases this year to the highest rate since 2017. This move was taken in order to maintain the policy of the curve control. The trend line had capped the 10-year bond yield at 0.25%. According to the Central Bank, it had purchased 95 trillion yen ($696 billion) worth of Japanese government bonds through November.

Nevertheless, the regulator's excessive presence in the market has distorted the yield curve. This limited the potential for regular buying and selling for both dealers and investors.

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