Bloomberg News

SocGen's Shimamoto Urges Longer Bond Durations in Japan

March 13, 2012

Japan should issue debt of longer maturities to minimize the risk of a collapse of government bonds that could send yields soaring, according to Societe Generale (GLE) Securities’ Tokyo branch manager Koji Shimamoto. Shimamoto spoke yesterday in Tokyo at a seminar hosted by Bloomberg.

On a potential collapse in Japanese bonds:

“The main scenario we see is a gradual steepening of the yield curve. We can’t completely discount the danger of a bond collapse.”

“If the yen were to weaken further and the Bank of Japan were to raise rates to protect the currency, there would be the risk that government finances would go out of control.”

“By issuing more bonds of ultra-long maturity and lengthening the average duration of bonds, it would be possible to control risk.”

On the extent to which Japan’s finances are sustainable:

“If the Bank of Japan (8301) ever had to abandon its low-interest rate policies, short-term rates would rise and force people to pay more interest. Huge amounts of short-term bonds have been issued to finance currency interventions. The average duration of bonds is extremely short.”

On Japanese bond buyers:

“If electricity rates and prices were to rise, people may shift funds from bank deposits into other types of assets. Banks and life insurers are currently the main purchasers of government bonds. Controlling how households and overseas investors behave isn’t possible.”

On the immediate outlook for Japanese bonds:

“From the latter half of the year into next year, yields may gradually rise, and the yield curve will continue to steepen.”

To contact the translator on this story: Taku Kato in Tokyo at tkato6@bloomberg.net

To contact the translation editor responsible for this story: Jonathan Annells at jannells@bloomberg.net; Naoto Hosoda at nhosoda@bloomberg.net


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