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The past month i am reading more and more articles about an imminent change in Bank Of Japan monetary policy since the new Governor Kazuo Ueda took office. Most of the articles are warning us to be cautious about that change but up until now Kazuo Ueda seems to not making radical changes but from what he hinting us he will in the near future. So i made a lot of research to truly understand how important is Japan and what kind of damage can this policy change do to the world economy.
Japan is known for having one of the largest and most advanced economies in the world. The country has a highly developed industrial sector, a skilled workforce, and is a leader in technological innovation. However, Japan's economy has also faced a number of challenges in recent years, including a low birth rate and an aging population, which has led to a shrinking labor force and stagnant growth.
In order to combat these challenges and stimulate economic growth, the Japanese government has made the decision to keep interest rates low. This policy is known as "Abenomics," named after former Prime Minister Shinzo Abe, who first introduced the policy in 2012. The goal of Abenomics is to create a cycle of growth, where low interest rates encourage businesses to invest in new projects, which in turn creates jobs and increases consumer spending.
The Bank of Japan has kept interest rates at or near zero for many years, and in 2016 it introduced a negative interest rate policy, where banks are charged a fee for depositing money with the central bank. The hope is that this will encourage banks to lend more money to businesses and consumers, thereby increasing economic activity.
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In addition to low interest rates, Japan has also taken steps to address its large external debt. As of 2022, Japan's debt was around $9.8 trillion US Dollars, 263% which is one of the highest in the world. To manage this debt, Japan has implemented a number of policies, including issuing government bonds, increasing taxes, and implementing austerity measures.
But what all that money went?
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Japan is often referred to as the "world creditor" because it has a significant amount of foreign assets, particularly in the form of investments in other countries' debt. In fact, as of 2021, Japan has the world's largest net creditor position, with total foreign assets exceeding foreign liabilities by over $3 trillion.
One of the main reasons for Japan's status as a world creditor is its history of running large trade surpluses. Japan is known for being an export-oriented economy, with many successful companies such as Toyota and Sony exporting their products to markets around the world. As a result, Japan has consistently earned more money from exports than it spends on imports, which has allowed it to accumulate foreign currency reserves and invest in other countries.
Japan's biggest foreign assets:
United States Treasury Securities: Japan holds more than $1.2 trillion in U.S. government bonds
Chinese Government Bonds: Japan holds around $300 billion in Chinese government bonds, making it one of the largest foreign holders of Chinese debt.
U.S. Equities: Japan holds more than $250 billion in U.S. equities.
According to the Bank of Japan, as of June 2021, Japan's foreign assets amounted to around $6.7 trillion, while its foreign liabilities were around $3.3 trillion. This gives Japan a net creditor position of around $3.4 trillion.
Japans Biggest creditors
United States: Japan's debt to the United States is around $1.3 trillion, which is the largest individual country debt. The majority of this debt is in the form of Japanese holdings of US Treasury securities.
China: Japan's debt to China is estimated to be around $300 billion, making China the second-largest creditor to Japan.
Eurozone: Japan's debt to the Eurozone, which is comprised of 19 European countries that use the euro as their currency, is around $250 billion.
United Kingdom: Japan's debt to the United Kingdom is estimated to be around $150 billion.
Cayman Islands: Japan's debt to the Cayman Islands, a British Overseas Territory in the Caribbean, is around $140 billion.
So i am concluding that if Japan starts raising rates and selling foreign Debt all hell might brake loose. That's why the new head of the BOJ is not rushing to anything and taking it's time. I believe that in the end the negative rate will end.
I believe it to be the hardest post i had to write because i had to do a lot of search and read some really hard core economic staff. And i also used ChatGPT to verify the numbers.
Sources:
https://www.ceicdata.com/en/indicator/japan/external-debt#:~:text=Japan%20External%20Debt%20reached%204%2C298.0,USD%20bn%20in%20Mar%202003.
Japan's Foreign Assets and Liabilities
https://www.imf.org › wpiea2021026-print-pdf
And that's the articles that made me start researching.
https://www.bloomberg.com/news/articles/2023-04-05/boj-could-end-yield-curve-control-in-april-ex-official-says
