JGBs - Japanese Government Bonds - Anyone Every Bother?

[TokyoBoglehead]

Bloggers like "randomwalker*" , recommend them along global index funds and cash holdings. The recommendation seem to be against developed bonds due to currency risk.

Yield are Low, but there is virtually no risk. Also banks and Secs. offer cash or point bonus campaigns to purchase them occasionally.

Perhaps a good alternative to keeping cash if you have over a years spending?

Thoughts?

*https://randomwalker.blog.fc2.com/

[TokyoWart]

Why would you hold a JGB? They are actually worse than cash stuffed in your mattress because cash maintains its face value while a bond will fall in value if interest rates increase. The extremely large fraction of JGB's held by the Bank of Japan is telling you that there is not enough demand for these securities from market participants (from those who are buying for their own economic interest) to support the current interest rate of those bonds.

[TokyoBoglehead]

Why would you hold a JGB? They are actually worse than cash stuffed in your mattress because cash maintains its face value while a bond will fall in value if interest rates increase. The extremely large fraction of JGB's held by the Bank of Japan is telling you that there is not enough demand for these securities from market participants (from those who are buying for their own economic interest) to support the current interest rate of those bonds.

If you hold a bond to duration the coupon and yield are guaranteed. You do not need to worry about market fluctuations. That is the appeal. That is how most investors will handle use these bonds at 3 and 5 year.

Only the 10 has a floating rate.

[sutebayashi]

With inflation running above the central bank’s target of 2% annually, I see no attraction personally in lending money to the government for less than that. They aren’t even paying 1%, since the BOJ has manipulated the price of bonds so high.

[TokyoBoglehead]

With inflation running above the central bank’s target of 2% annually, I see no attraction personally in lending money to the government for less than that. They aren’t even paying 1%, since the BOJ has manipulated the price of bonds so high.

It basically Jgbs or nothing for risk free interest though. Term deposits are just buying Jgbs indirectly and offer less liquidity.

My argument is if you have larger cash holdings buying them could definitely make sense. Especially during a cash bonus campaign.

[sutebayashi]

Yeah but when the nominal interest rate is so low, I just don’t even bother with interest. Yes, that goes for yen term deposits as well.

For me this yen sitting in my bank account is basically there to be spent potentially within a year, maybe paying taxes, living expenses, maybe to be stumped up as margin for my speculative fun with forex and commodities futures, etc.

It’s not long-term investable money, in which case it’d be in my securities account.

JGBs would be more liquid than a term deposit, but if the price does slip and I didn’t plan to hold it for the term of the bond and sell, then it might lose some value.

I have yen salary income too. My kids are a decade from higher education, I’ll probably still be working then, and the privilege of lending money to the government in the meantime just doesn’t rouse my animal spirits.

I guess I might think differently if I were already retired and did have some big spending plans on the horizon, such that I didn’t want to risk the money while wanting to do better than 3 yen interest.

[eyeswideshut]

With inflation running above the central bank’s target of 2% annually, I see no attraction personally in lending money to the government for less than that. They aren’t even paying 1%, since the BOJ has manipulated the price of bonds so high.

It basically Jgbs or nothing for risk free interest though. Term deposits are just buying Jgbs indirectly and offer less liquidity.

My argument is if you have larger cash holdings buying them could definitely make sense. Especially during a cash bonus campaign.

Or convert to USD and earn 4.5 - 5% in a fixed term deposit. But it is not insured and adds a whole lot of currency risk if the Yen appreciates. How much of my money to keep in cash Yen is a question I really struggle with.

[sutebayashi]

Or convert to USD and earn 4.5 - 5% in a fixed term deposit. But it is not insured and adds a whole lot of currency risk if the Yen appreciates.

Yeah. The currency fluctuations will typically outweigh any interest earned. So it is currency speculation in the end. And being stuck in a term deposit means you can’t exchange the money when you think the time might be right.

None of this is much good if one wants to spend the yen soon.

[TokyoBoglehead]

Or convert to USD and earn 4.5 - 5% in a fixed term deposit. But it is not insured and adds a whole lot of currency risk if the Yen appreciates.

Yeah. The currency fluctuations will typically outweigh any interest earned. So it is currency speculation in the end. And being stuck in a term deposit means you can’t exchange the money when you think the time might be right.

None of this is much good if one wants to spend the yen soon.

If you were set on this path, you could use US treasury ETFS or TYO ETFs to achieve the same thing, and have more liquidity.

TYO list treasury ETFs are also offered in hedged and unhedged flavors at different maturities.

https://www.jpx.co.jp/english/equities/ ... 01-09.html

[VG1]

Regarding investment in JGBs, Ueda will probably raise the ceiling on yields or abandon yield curve control altogether so I would be reluctant to invest in JGB at the current yields (I am talking about medium-term maturities like 10 years. Regarding shorter maturities I share Sutebayashi view, I think yields are too low to represent an attractive alternative to JPY cash.

Speaking of bonds, I wanted to know if any of you invest in JPY corporate bonds. The spreads are probably tight but I wanted to know if anyone has bought some in the primary or secondary market through their brokers and if so what type of minimum amount is needed. I don't think there are any ETFs that specialize in this sector.