Japan Reluctance to Issue JGBs and Premature Rate Hikes

The report argues that Japan should abandon fiscal austerity and the 60-year JGB redemption rule to fund strategic growth investments. It warns that premature interest rate hikes by the Bank of Japan could stifle a nascent capex cycle and damage national strength.

Key Takeaways

• 1.The 60-year JGB redemption rule is an unnecessary formality that should be abolished as it hinders strategic investment.
• 2.Japan has greater room for strategic fiscal expansion than other advanced economies due to low domestic inflationary pressure (Tokyo ward CPI at +0.7% YoY).
• 3.Premature rate hikes by the Bank of Japan risk breaking the capex cycle and could lead to further JPY depreciation.

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