RetireJapan

Ax6isB wrote: ↑Wed Jul 26, 2023 11:39 pm If rates went up in Japan, how would that impact the payment of interest on debt? Since most JGBs are owned by the bank of Japan, would the impact be limited? I have to go look and see how other countries are managing this as there was crazy spending during Covid.

I think if rates did go up here, some company’s would implode. For example, Rakuten is already paying 12% on US issued debt. 12%!

For Bonds, the Interest Rate is not fixed. The Coupon Payments are fixed at the interest rate prevalent when the bonds were originally issued.

Then as prevailing interest rates change, the price of the bond changes to reflect the change in the interest rate, and not the actual payments, which are locked in to the maturity of the bond.

New payment levels will kick in when the debt is refinanced at the prevailing interest rate at that time.

Deep Blue wrote: ↑Mon Jul 31, 2023 10:11 am if yields do begin to creep up it becomes a bigger and bigger problem for the Government who already over-tax us and who want to spend a lot more

I can live with taxes as they are right now - I would happily take a tax reduction of course. But I long to see the government spend within its means for a change.

Those yields on 10 year JGBs I hear have crept up to above 0.6% today. The ones held by the BOJ is one thing (hmm isn’t the market value of long term bonds held sometimes bad for banks?), but the other ones not held by the BOJ will start costing more to service. So I really do want to see the government try harder to rein in spending.

Interestingly to me, the JGB yield has crept up since the recent Ueda BOJ announcement, yet the yen has weakened, despite suggestions that it might strengthen in response. Still it is summertime and these could be just meaningless short term speculative moves, perhaps.

sutebayashi wrote: ↑Mon Jul 31, 2023 11:38 am

Deep Blue wrote: ↑Mon Jul 31, 2023 10:11 am if yields do begin to creep up it becomes a bigger and bigger problem for the Government who already over-tax us and who want to spend a lot more

I can live with taxes as they are right now - I would happily take a tax reduction of course. But I long to see the government spend within its means for a change.

Those yields on 10 year JGBs I hear have crept up to above 0.6% today. The ones held by the BOJ is one thing (hmm isn’t the market value of long term bonds held sometimes bad for banks?), but the other ones not held by the BOJ will start costing more to service. So I really do want to see the government try harder to rein in spending.

Interestingly to me, the JGB yield has crept up since the recent Ueda BOJ announcement, yet the yen has weakened, despite suggestions that it might strengthen in response. Still it is summertime and these could be just meaningless short term speculative moves, perhaps.

No, they won't cost more to service. The coupons will be the same.
But the value of bond assets on the books will decline if interest rates go up.
The bonds can then only be sold / valued at a lower price that makes the future cashflow stream yield a return of the new prevailing interest rate.
This is what happened to Silicon Valley Bank and the others that failed.
Their Long-Term Bond Positions on the Books declined significantly in value due to rising interest rates, which affected the book value of the banks, and their collateral for their borrowings, so they were then in a Credit Squeeze, just like Lehman in 2008...
And when depositors got wind of the credit squeeze, they all rushed to withdraw their deposits, not by lining up outside the banks, but electronically...
And new debt will cost more when the bonds have to be rolled over.

I still don’t understand how Japan gets through this without blowing up.

Lose control of the yen, lose control of interest payments, lose confidence in the currency, etc. They’ve made it this far I suppose. I guess that’s why I’m here in a forum vs the hallowed halls of the BoJ.