During this fiscal year, which starts in Japan in April, the Japanese government will spend 44 trillion yen ($398 billion) on the redemption of its bonds. This will put pressure on the yen rate and add liquidity to international equity markets, as well as debt and currency markets.
According to JPMorgan Chase & Co. strategists Tohru Sasaki and Maoko Ishikawa, investors have already begun fleeing Japanese government bonds in favor of international market assets.
“Some investors may want to wait and see developments in trade talks between the U.S. and China, but most of them may not be able to wait and may start selling yen sooner than later,” the specialists said.
The Bank of Japan targets 10-year government bond yields at around zero. As a result, investors are looking for more profitable assets in the international market.
If market players partially convert the 44 billion yen into US dollar, prerequisites will be created for considerable weakening of yen and increase in the rate of the European and US currencies.
Japan’s currency was at 110.076 to the dollar as of May 8 morning.