The FT reports on the situation in Japan:
JGB dealers said it sent a “very clear message to the central
By quitting the elite group, BTMU would be making a symbolic gesture
rather than disrupting the ¥10tn a month market for new JGB issuance:
for the past three years as part of quantitative and qualitative
easing, virtually all government issuance has been bought up by the BoJ.
The subtitle of the article reads ‘Damage wrought by negative interest rates prompts revolt by country’s biggest financial group’. And what a revolt it is! The Japanese government has received the ‘very clear message’ and surely is struggling to find a solution to this non-issue. If ‘all government issuance has been bought up by the BoJ’, why should the Treasury sell government bonds to the banks only so that they can sell them to the Bank of Japan (central bank of Japan) for a small profit?
The inflation rate in Japan hovers around 0%, and the latest news from the production side are not good. If Japan would only increase fiscal spending, it would have more economic growth, more inflation, and less unemployment, all of which is good. Higher economic growth and higher real wages will probably follow in the medium term. However, it seems that this is not what the press discusses. Here is an excerpt from an article on fiscal policy in Japan:
On the fiscal side, it remains doubtful if Japan’s fiscal system can stay robust as the Abe administration is likely to expand fiscal spending following the second postponement of the consumption tax hike from 8 percent to 10 percent. Under the circumstances, the concept of controlled inflation can be of great use. In this connection, it is important to be careful not to confound two fiscal challenges when addressing the issue of returning the country to a sound fiscal footing. One of the challenges is a near-term reduction of year-after-year fiscal deficits and the other is a long-term curtailment of outstanding government debt.
Why Japan should worry about these two ‘fiscal challenges’ is not clear to me. Japan has its own currency, and the Bank of Japan can buy up all the government bonds and it does. There seem to be no problems with this policy in terms of ‘sound fiscal footing’. Just the opposite appears to be the case: it is a very sound policy that the central bank buys all government bonds because this signals to investors that the government cannot go bankrupt. This helps to bring about low interest rates and hence improves economic policy-making.
So, there is no revolt.