{"text":[[{"start":9.14,"text":"For market watchers, the prospect of Japan’s interest rates rising into positive territory became more unnerving with each passing year. "},{"start":16.582,"text":"The longer borrowing costs remained below zero, the more traders and investors — at home and abroad — became accustomed to it. "},{"start":23.573999999999998,"text":"A reversal of that status quo risked upsetting financial stability. "},{"start":27.429000000000002,"text":"But on Tuesday, after eight years in the negative, the Bank of Japan governor Kazuo Ueda pulled it off in smooth style. "},{"start":34.234,"text":"He raised rates from -0.1 per cent, to a range of 0 to 0.1 per cent, and called time on yield curve control. "},{"start":41.977000000000004,"text":"Global markets took it all in their stride. "}],[{"start":45.27,"text":"That is down to the BoJ’s prudent choreography. "},{"start":48.362,"text":"It gradually loosened its approach to YCC in prior meetings to avoid abrupt market moves. "},{"start":53.542,"text":"Its decision was well signalled, allowing traders time to price it in. "},{"start":57.622,"text":"The central bank also decided to continue buying Japanese government bonds and made clear that rates would not march higher any time soon. "}],[{"start":65.61,"text":"Outright tightening still seems far off. "},{"start":68.352,"text":"Most analysts do not expect recent wage growth to be maintained, and near-term inflationary momentum has waned. "},{"start":74.444,"text":"The BoJ nonetheless needs to continue to tread carefully. "},{"start":77.699,"text":"Markets will want to decipher the central bank’s plan for normalisation, so its next steps take on even greater importance. "},{"start":84.054,"text":"Financial exposures, forged during the BoJ’s ultra-loose era, have not gone away. "}],[{"start":89.65,"text":"First, in the hunt for better than near-zero returns at home, Japanese institutions, including pension funds, life insurance companies and banks, have become major international investors. "},{"start":100.617,"text":"International portfolio investments were over $4tn at the end of 2023. "},{"start":105.672,"text":"Japan is the largest foreign holder of US government debt. "},{"start":109.102,"text":"Higher yields back home could tempt Japanese investors to retrench, reducing demand for US and European government debt in the process. "},{"start":116.244,"text":"Higher hedging costs have already prompted some to do so. "},{"start":119.31200000000001,"text":"The yen has also been the funding currency for carry trades, where investors borrow in low-cost yen and swap it for higher-yielding dollars. "}],[{"start":null,"text":"
"}],[{"start":127.5,"text":"The second source of risk comes from Japan’s public finances. "},{"start":131.279,"text":"At around 2.5 times the size of its economy, Japan’s debt is vulnerable to any uptick in yields and reduced bond-buying by the BoJ. "},{"start":139.059,"text":"Institutional investors with significant asset holdings in Japanese bonds could face losses if domestic rates move higher. "},{"start":145.527,"text":"For commercial banks, higher rates will boost net interest margins, but regulators are alive to the risk of Silicon Valley Bank-style dynamics from any losses on assets. "},{"start":154.469,"text":"Indeed, few bankers have experience of a rising rate environment. "},{"start":158.499,"text":"Borrowers accustomed to low rates could also face difficulty. "}],[{"start":162.86,"text":"Third, in their search for yield some Japanese banks have engaged in riskier lending abroad. "},{"start":168.15200000000002,"text":"For instance, shares in Tokyo-based Aozora Bank recently slumped after it flagged losses tied to its US commercial property book. "},{"start":175.33200000000002,"text":"These exposures could have a knock-on effect at home. "}],[{"start":178.62,"text":"For now, any major repatriation of investments or unwinding of the carry trade is unlikely. "},{"start":184.162,"text":"US bond yields are still significantly more attractive. "},{"start":187.454,"text":"A sharp and rapid step-up in the BoJ’s policy rate, which could also drive a significant appreciation in the yen, is off the table too. "},{"start":194.572,"text":"In any case, the central bank appears willing to intervene to support financial stability. "},{"start":199.514,"text":"But vigilance is important. "},{"start":201.30700000000002,"text":"Even if Japan’s policy rates do not move unpredictably, America’s might. "},{"start":205.674,"text":"That will affect spreads, exchange rates, and hedging costs. "},{"start":209.604,"text":"Other economic shocks could alter Japan’s domestic growth, inflation and public finance outlook. "}],[{"start":215.35,"text":"The BoJ made a significant step on Tuesday. "},{"start":218.304,"text":"But the journey to normalising Japan’s monetary policy remains a long slog. "},{"start":222.797,"text":"Financial threats lurking after years of sub-zero rates have so far been tamed — in no small part down to the central bank’s clear and careful approach. "},{"start":230.577,"text":"That must now continue. "}],[{"start":232.14,"text":""}]],"url":"https://creatives.ftacademy.cn/album/147199-1710983732.mp3"}