Bond Market
Macroscope | Why Japan’s bond moves could see shift in East Asia’s financing model
East Asia’s “economic miracle” in the post-World War II period was predicated upon a number of factors, such as the region’s export-led growth model, but critically it also depended on an assured supply of capital to finance business investment.
One source of such finance was bank loans, the supply and direction of which can be officially influenced by various means rather than being chiefly market-determined. Even today, bank loans account for most of the business financing in Japan, the country that was at the vanguard of the Asian economic miracle.
Demand for funds to finance not only capital investment projects but also the rationalisation of industry structures can outstrip supply. Moves Japan is making now to meet this deficit without losing control over the restructuring process could influence financial development more widely in Asia.
Japanese authorities are promoting development of the domestic corporate bond market as an alternative to both bank and equity financing. Rising interest rates in Japan after decades of ultra-low, zero and even negative rates mean the timing is good.
The Bank of Japan bought huge amounts of Japanese government and, to a smaller extent, corporate bonds in recent decades to counter disinflation and stagflation, but it now seeks to dispose of some of those holdings. Bigger structural factors underlie the corporate bonds initiative, however.
The Ministry of Economy, Trade and Industry has formed a panel to draft an enabling strategy, according to a report in The Japan Times on April 11. It did so in the belief that more risk capital will be needed, in line with a surge in mergers and acquisitions in Japan.
