I'm confused because of Kurado's recent announcement about the 2% inflation goal, well a 2% inflation goal, would thereby cause bond yields TO go up if indeed they got 2% inflation, this is pretty obvious, so why are the freaking out when 10 year rates go above 0.80% when they know really well themselves that the yield would have to go to 2% or more just to break even? -- it seems they're screwed in the long term anyway, but what's going on/ what are they really trying to do?
I don't see panic with their 10 years. Shorter term they could get 2% inflation but longer term their QE does nothing to push out their production possibilities frontier to produce a higher rate of growth in the economy.
of course there is a panic 25% of government revenue is paying interest and the yields are moving up. they had a 1% yield for like 15 years and most households hold bonds while there money is being devalued and stocks are moving up. the banks are losing money on their bonds plus there are others with major books that can blow up because of a move up in yields. this is not a planned event and could be a problem. they all like to pretend they have things under control but if it was so easy to do all those crazy things without any fall outs governments would of done it long ago.
Japan's 10 year. Spikes from lower levels have happened before. If things get out of hand, one would expect them to shut off the QE.
If thing get out of hand they will just peg bond rate And then they can proceed with QE at their own will
nothing you are saying is wrong. it is more because of derivative books. they claim there not mathematically built for extremely quick spike ups. japan has a major amount of government debt because of 20 years of deflation so how do you get people to hold that debt when money is devalued, plus inflation, and a rocketing stock market.
they don't have the money to pay the bonds back unless they print the money than money is even more worthless than the day before. its a cycle that can't end well because idea is to spur investment not to make stocks just go higher.
imo most of the JGB will be ultimately cancelled after being bought by BOJ. the debt/GDP will go down with the difference showing up in money supply, causing real asset appreciation (i.e. paper yen depreciation). the only question is if they can keep the process stable - because if they can't they will certainly get more than what they bargained for (those 2%).
" can't they will certainly get more than what they bargained for (those 2%)" once the inflation genie is out of the bottle you cannot put it back in. the same is true for the US. shorting jgbs will be the trade of the decade.