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Ownership trends for Japanese Government Bonds continue to make the situation less stable

17 Feb 2013 by Jim Fickett.

Recently Japan's Ministry of Finance released their very helpful quarterly newsletter. The most interesting data in the newsletter are the changing patterns of ownership for Japanese Government Bonds (JGBs).

Traditionally, households were significant investors in JGBs. This was very good for the government, in that most retail investors bought to hold forever, making for stable demand. However the share of JGBs held by retail investors has been falling now for some time:

The Bank of Japan has been accelerating its acquisition of JGBs, and that has been under a very conservative head who is worried about inflation. In the next month or so the BOJ will get a new head with the directive (from the Prime Minister) and inclination to further boost this trend in order to create inflation. In other words, money printing has been accelerating, and will accelerate further. If this does succeed in creating inflation, which seems likely enough, it will cause bond values to drop.

The share of JGBs held by foreigners is setting new highs. That is fine for now, but unlike Japanese retail investors and pension funds, who buy to hold, foreign investors are likely to flee at the first sign of losses.

All in all, there is no sign of any fracture yet, but the situation continues to grow less stable by the day.