Dividends and Japan’s central bank has markets bracing for strife

In America there is an industry of consultants who seem to watch what will the fed do? For every country around the world, there is a central bank which tries to balance the needs of the economy growing and not growing too fast to cause other concerns such as inflation. There are plenty of examples to examine and all of them have varying degrees of success. Sometimes the central bank does not want to let the market decided the outcome.

In an article by Naomi Rovnick and York Banceli of Reuters, the Bank of Japan has maintained ultralow interest rates. There were valid reasons to do so as COVID policies of shutdown both the economy and borders meant the bank had to do something. Recently Japan reopened its borders to tourism to bring in money from seeing the many wonders of Japan, you might remember Japan hosted an Olympics or built massive infrastructure for tourism activities.

Analysts believe a policy change is inevitable at some point given the Japanese inflation is at 41-year high and the cost of keeping borrowing down continues to rise.

Expectations are yields will move higher to entice cash back home and investors now have to adapt to potentially sustained fall in demand for Japanese global bonds.

Total holdings of foreign bonds by Japanese institutional investors, excluding Japan’s $1 trillion reserve portfolio, reached $3 trillion at its peak. The expectations are demand will be above $2 trillion.

Linking to dividend paying stocks, in every market there are demand and supply issues, sometimes investors from other countries see bargains at the home country, sometimes investors domestically see bargains at home. There are multiple government agencies and investment banks examining the demand and supply issues. Sometimes the answer is the cost to maintain the status quo is too expensive and needs to cutback, or the alternatives are the solution people really do not want. Watching costs and seeking alternatives is a normal thing to be doing for your homework.

There are more questions than answers, till the next time – to raising questions.


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