Some analysts predict that most Japanese investors will bring their capital back home amid a change in leadership at the Bank of Japan as the "ultralow interest rate era" is coming to an end.
Low rates are extremely unfavorable to domestic investors. Against this backdrop, analysts and investors expect Japan’s central bank to loosen its tight control of interest rates.
Earlier, Bank of Japan Governor Haruhiko Kuroda poured an impressive $3.4 trillion firehose of Japanese cash into the investment world. Now his successor will have to change the direction of monetary policy. Experts fear that a U-turn by the regulator could send shock waves through the global economy.
Notably, in 2016, Kuroda initiated a number of measures to lower bond yields. As a result, the financial world was swept by a wave of offshore investments worth more than two-thirds of Japan's GDP. In this regard, Kazuo Ueda, the current central bank governor, will have to plug holes in the economy and put an end to the cheap money experiment as rising interest rates in other countries threaten the financial stability of the state.
For the time being, Japanese investors are the largest holders of US government bonds, with their portfolios consisting of a wide range of foreign assets, from Brazilian sovereign debt to European power plants. In the event of higher borrowing costs in the country, the global bond markets could face increased volatility. Monetary policy tightening by the Bank of Japan will in turn lead to tighter control over Japanese creditors.
At the moment, increased interest in homeland investment is the most appropriate solution, analysts believe. Japanese investors started to flow back home in 2022. Last year, they offloaded a record amount of overseas debt.
Later, in December 2022, Kuroda slightly loosened his grip on bond yields. This led to a plunge in Japanese government bonds and a sharp rally in the yen. Against this background, many currencies and securities, from US Treasury bonds to the Australian dollar, gained in value.