In a statement made last week, Kazuo Ueda, Bank of Japan Gov., stated that they have raised the cap on long-term government bonds. This rate has increased by .5% from where it was previously. This rise in interest rates can cause a shift in investments in the United States. The Wall Street Journal states, "Japanese investors own over $1 trillion in U.S. Treasurys". With an increase in the interest rate on bonds in their own country economists are worried that this could attract investors to put their money elsewhere. Investors would rather put their money into their own country to avoid any unfavorable currency switches. This would not only affect the United States, but also other countries across the globe since Japanese investors have money in many different countries. While the impact being felt now is modest analysts are nervous about the precedent that this change is causing. They are concerned that the BOJ is taking steps toward removing yield targets altogether. This would cause U.S. stocks to decrease and would push people to buy less stock since it would be riskier. Another impact would be the decrease in value on the dollar. Before the yield target helped strengthen the value of the dollar, so the yield target being taken away will cause the value of the dollar to be weakened. In conclusion, the rising interest rates in Japan can cause the economy to slow down and have investors shift their focus away from stocks and look toward safer assets like bonds.
Reference:
Goldfarb, S., & Yoon, F. (2023, September 11). How the Bank of Japan’s shift could play out in U.S. markets. The Wall Street Journal. https://www.wsj.com/economy/central-banking/how-the-bank-of-japans-shift-could-play-out-in-u-s-markets-b5d7acf5?mod=economy_feat1_central-banking_pos2
The whole world market still amazes me. This just shows how complex and intertwined everything is. Like you said Maria, this will have impacts on both US and Japan as well as other countries. The influences of where to put money will be changed and with that I believe one can infer that national GDP will be changed due to the investment change from stocks to bonds within their own countries due to the currency change and intrest spikes.
ReplyDeleteI was thinking exactly what Ava said above, it is just crazy to think about how connected the world economy is. A change in the Japanese long-term government bonds sparks major effects world wide. We are so set in thinking about how things around us may effect our lives, but personally I never would think about something so far away being so impactful.
ReplyDeleteJapan changing its interest to that of internal banking instead of a Globalist view like most countries today leads me to believe Japan may be trying to enact some form of isolationism. If Japan were to erase itself from the general equation it would not only harm the general global economy but may also elevate its own status in terms of world economies. Maybe an aim to shift the world superpowers around even.
ReplyDeleteFor sure if Japan erased itself that would drastically impact the whole world just like Thomas and I said above. That is a good point that is Japan isolates itself that it could create a new superpower dynamic type of economy that makes Japan have the option to grow but also if they isolate themselves would that not decrease their NX (net imports and exports) and potentially hurt them overall. I mean they would have to be able to produce everything they would need on their own or just not function with the goods that they import.
DeleteI just did a similar blog post on how the BOJ is having a lot of problems with managing high inflation. It seems like Japan has no idea what to do because they won't change their monetary policies, are unsure of market expectations, and inflation continues to rise. The result of all of this is weakening the value of the yen.
ReplyDeleteJapan's interest rates expected to go up is a reminder of how fragile the global economy is and how interconnected financial markets are. It's a reminder that we need to keep an eye on things and take the right measures to make sure everything is right and avoid any consequences that could happen in other countries.
ReplyDeleteThis is a very interesting article. The reason I think its interesting is it shows how one country changing something in their own system can effect another countries interest or tax rates like it can. You would think each country has something to ensure the safety of their monetary value of money along with making sure taxes and interest rates remain fairly normal levels.
ReplyDelete