Japan Tries to Save the Yen. The World Gets the Bill.

Japanese bonds paid almost nothing for decades, so the biggest pool of savings on earth went abroad and financed everybody else. Now they pay enough to compete, and Cory Klippsten walks through what that changes.

Japan has spent roughly $170 billion this year defending the yen, and the United States bought yen for the first time since 1998. The fundamental problem is unchanged: Japanese rates are still far below American rates. Markets price a Bank of Japan hike on September 18, the 10-year JGB crossed 3% for the first time since 1996, and Toyota and Tohoku Electric told Bloomberg that refinancing their yen bonds would raise annual interest costs by more than 30%.

The bigger consequence lands outside Japan. Hedging a US Treasury back into yen can now erase its yield advantage over a Japanese bond, and Japanese investors have already sold a net 3 trillion yen of overseas debt this year. Japan does not need to dump Treasuries. It just needs to buy fewer. Bond prices are set at the margin.

Chapters:
0:00 Sunday in London
0:28 $170 billion defending the yen
0:41 The fundamental problem
0:52 The bond market has already moved
1:06 Decades of cheap borrowing reprice
1:24 The bigger consequence is outside Japan
1:51 3 trillion yen sold, and why tiny is the point
2:10 Stop buying, and prices are set at the margin
2:21 The biggest pool of savings on earth
2:33 The market bills Japan, and the world Receive SMS online on sms24.me

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