Title: Japan's Lowflation Problem
Headings: Japan's Lowflation Problem
May 30, 2021,05:30pm EDT
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Japan's Lowflation Problem

Content: The Bank of Japan would have to start acting like any other asset manager, managing a diverse portfolio so as to minimise risks and maximise returns. But this couldn’t be so hard to do, surely? Another concern is that the value of the domestic assets on the Bank of Japan's balance sheet could collapse. If this happened, then the Bank of Japan would be technically insolvent. How likely is this, and would it trigger hyperinflation in Japan? Firstly, I don’t think it is likely. As I noted earlier, the Bank of Japan’s assets are mostly Japanese government debt, and most of what the Bank doesn’t hold is owned by Japanese citizens, predominantly as retirement savings. Why would they reject the savings they need for their old age? Anyway, the Bank of Japan has made it very clear that if yields show any sign of rising, it will simply buy more bonds to push them down again. This is a battle that markets can’t win.