Asian Offshore Funds
They know a thing or two about lunatic bond yields in Japan
as well, but in Tokyo’s case that’s the way it’s
always been. You’ll have a difficult time getting more
than 1.7 per cent from a typical Japanese ten-year bond, and
sometimes the yield has gone as low as 1.3 per cent. There must
be something pretty special in them to make people buy them.
There is, of course.
Japanese companies are known for their pathetic dividend yields
(currently 0.6 per cent), and the average consumer is easily persuaded
to buy the Post Office bonds with which the government has been
shoring up its stumbling economy since the 1990 stock market collapse.
But many of the analysts we’ve been talking to recently are
firmly of the opinion that this can’t go on for ever.
Asian Offshore Funds & Japanese Manufacturing
They say that some of the largest Japanese manufacturing companies
have finally started to get rid of the ludicrous structural inefficiencies
that have kept their profits so low for the last 20 years, and they
fully expect to see corporate dividends rising steeply in the next
five years. That in turn will boost the Nikkei, which should be able
to recapture the 30,000 level without pushing the p/e beyond its currently
terrifying 80.
But any new equity boom will put the Japanese bond markets in a very nasty
situation. The Tokyo government is now in the process of recycling
vast quantities of ‘reconstruction bonds’ which it hurriedly
issued after the 1990 slump. It can’t afford to redeem them
outright, because the economy is still essentially flat, and the
markets know this.
Asian Offshore Funds & Commentators
So some of our most esteemed commentators are predicting that
falling demand for bonds will see Tokyo bond yields rising as high
as 3.5 per cent or even 4 per cent in the medium term. This is not
a one-off situation. It’s a return to sanity after the lunacies
of the 1980s. Again, better get used to it. |
