(Valuewalk) Recently Japanese equity markets were hit by an ‘earthquake’. The biggest bank in Japan – Bank of Tokyo-Mitsubishi UFJ (BOTM) – resigned of his primary dealer status. The reason for such decision is the structure of government debt which can be described as a huge speculative bubble. Who inflated it? The Bank of Japan through countless interventions. Tokio is a leader of zero or negative interest rates scaring any small investor away from the debt market. Today even 10-year bonds are sold with a negative interest rate – a guaranteed loss.
In the long-term, the situation we see today in bonds is not sustainable. Prices are too high, owners of government debt can lose a lot of money in case of a rate hike or even slight change of the BOJ policy. The price drop is going to hurt more the longer the maturity of the respective bond.
