Japan may face the threat of a $3 trillion crisis

The former head of the Bank of Japan, Haruhiko Kuroda, changed the direction of the global market in 2016, when he brought down offshore investments worth $3.4 trillion to the market in order to reduce bond yields. 

The new head of the Japanese central bank, Kazuo Ueda, is likely to change the current course of things, which may cause some shock in the global economy. Investors are cautiously preparing for the inevitable end of the decade of ultra-low interest rates, as Ueda may have no choice but to put an end to the experiment with «easy money» against the background of rising interest rates in other countries, which threatens global financial stability.

At the same time, the stakes are quite high: Japanese investors are the largest foreign holders of US government bonds and own almost everything – from Brazilian debt securities to European power plants and packages of American risky loans.

Experts note that the rising cost of borrowing in Japan threatens to increase fluctuations in global bond markets, which are intensified by the actions of the US Federal Reserve System to combat inflation and fears of a new credit crisis. Against this background, the tightening of the monetary policy of the Bank of Japan is likely to strengthen control over creditors in Japan after the recent banking turmoil in the United States and Europe.

Recall that the Bank of Japan has bought Japanese government bonds worth 465 trillion yen ($3.55 trillion) since Kuroda implemented quantitative easing 10 years ago, which led to lower yields and caused unprecedented distortions in the sovereign debt market. As a result, local funds sold 206 trillion yen worth of securities during this period in search of more profit from other sources.