A $3 trillion threat to global financial
markets looms in Japan
Haruhiko Kuroda, governor of the Bank of Japan, changed the direction of international markets by dumping a $3.4 trillion firehose of Japanese money on the investor community. Now Kazuo Ueda is likely to destroy his reputation, creating the conditions for a flow reversal that might have a negative impact on the world economy. Investors are preparing for the end of a decade of ultralow interest rates that penalized domestic savers and sent a wall of money overseas just over a week before a significant leadership shift at the BOJ. After Kuroda took action to lower bond yields in 2016, the exodus picked up speed, and it culminated in a mountain of offshore assets worth more than two-thirds of Japan's economy.
Haruhiko Kuroda, governor of the Bank of Japan, changed the direction of international markets by dumping a $3.4 trillion firehose of Japanese money on the investor community. Now Kazuo Ueda is likely to destroy his reputation, creating the conditions for a flow reversal that might have a negative impact on the world economy. Investors are preparing for the end of a decade of ultralow interest rates that penalized domestic savers and sent a wall of money overseas just over a week before a significant leadership shift at the BOJ. After Kuroda took action to lower bond yields in 2016, the exodus picked up speed, and it culminated in a mountain of offshore assets worth more than two-thirds of Japan's economy.
Under the new governor Ueda, everything runs the risk of falling apart at the same time that other countries are already experiencing rising interest rates that are upsetting the global banking system and endangering financial security. The stakes are high because Japanese investors, who are the largest foreign holders of U.S. government bonds, also own a wide range of hazardous loans made in the United States, including Brazilian debt, European power plants, and bundles of them. A rise in borrowing costs in Japan poses a threat to amplify the fluctuations in the world's bond markets, which are already being shaken by the U.S. Federal Reserve's year-long effort to fight inflation and the emerging threat of a credit crisis. In light of this, the BOJ's tighter monetary policy is likely to increase the monitoring of its nation's lenders.
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