Global Economy & Policy Insight Weekly

Research evidence excerpt

Global Economy & Policy Insight Weekly

ual investors into eligible investments under the new NISA

program may reflect a desire to curb a sharp rise in long-term interest rates, which

could undermine the stability of Japan’s economy and financial markets. The

administration’s positive remarks about including JGBs as NISA tax-exempt

investments, like its comments about expanding the GPIF's investment in domestic

assets, may have an aspect of verbal intervention aimed at curbing the rise in long-

term interest rates. The backdrop to the current depreciation of the yen and downtrend

in JGB prices is the “honebuto shock”, referring to the sell-off of the yen and JGBs that

followed the release of a draft of the Takaichi administration’s proposed Basic Policy on

Economic and Fiscal Management and Reform. The Basic Policy draft reflected the

administration’s accommodative fiscal policy stance and its aim of restraining interest

rate hikes by the Bank of Japan (BOJ). Further weakening of the yen and JGBs (ie,

rising yields) would likely push up inflation and long-term interest rates, destabilizing

Japan’s economy and financial markets and putting pressure on people's livelihoods. If

the stance indicated in the draft Basic Policy is the core stance of the Takaichi

administration, verbal intervention aimed at curbing yen depreciation and rising JGB

yields by proposing a revision of GPIF's basic portfolio or including JGBs in the new

NISA program is a superficial response that will miss its target. If the administration is

serious about stemming the yen’s depreciation and rising JGB yields, it should show

maximum respect for BOJ independence and implement a fiscal policy that earns

market trust as a viable path towards fiscal consolidation.

Japanese version published on