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

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.