BoJ YCC Exit

Apollo Chief Economist

With yields going up in Japan, the risk is that Japanese investors will now begin to sell US fixed income and start buying higher-yielding Japanese fixed income.  

This is a big deal for global fixed income markets because Japanese investors are the biggest foreign holder of US Treasuries, and they also own significant amounts of US credit.

Our updated BoJ YCC exit chart book is available here, a few key stats:

  • Japan is the largest holder of US Treasuries in the world, see the first chart below.
  • The BoJ owns more than 50% of all JGBs outstanding, see the second chart.
  • BoJ JGB buying has been a dominant force in markets for the past decade, see the third chart.
  • Because of the significant yield differences in the front end of the yield curve between the US and Japan, the hedging costs for Japanese investors buying US Treasuries are very high at the moment, see the fourth chart.
  • Also, this BoJ illustration of their policy change shows how they will now do “YCC with greater flexibility.”

All other central banks in the world, including the Fed, ECB, BoE BoC, and RBA, have aggressively raised short-term interest rates to get inflation under control. The BoJ has not raised short-term interest rates, and abandoning YCC is the BoJ’s response to high inflation. The BoJ YCC policy started in 2016.

What are the consequences of Japan abandoning YCC?
Japan owns more than $1 trillion in US Treasuries, more than China
Source: Bloomberg, Apollo Chief Economist
The BoJ owns more than 50% of Japanese government bonds
Source: BoJ, Bloomberg, Apollo Chief Economist
BoJ bond buying since 2013
Source: Bloomberg, Apollo Chief Economist
Dollar-hedging costs for Japanese investors
Source: Bloomberg, Apollo Chief Economist

This presentation may not be distributed, transmitted or otherwise communicated to others in whole or in part without the express consent of Apollo Global Management, Inc. (together with its subsidiaries, “Apollo”).  

Apollo makes no representation or warranty, expressed or implied, with respect to the accuracy, reasonableness, or completeness of any of the statements made during this presentation, including, but not limited to, statements obtained from third parties. Opinions, estimates and projections constitute the current judgment of the speaker as of the date indicated. They do not necessarily reflect the views and opinions of Apollo and are subject to change at any time without notice. Apollo does not have any responsibility to update this presentation to account for such changes. There can be no assurance that any trends discussed during this presentation will continue.   

Statements made throughout this presentation are not intended to provide, and should not be relied upon for, accounting, legal or tax advice and do not constitute an investment recommendation or investment advice. Investors should make an independent investigation of the information discussed during this presentation, including consulting their tax, legal, accounting or other advisors about such information. Apollo does not act for you and is not responsible for providing you with the protections afforded to its clients. This presentation does not constitute an offer to sell, or the solicitation of an offer to buy, any security, product or service, including interest in any investment product or fund or account managed or advised by Apollo. 

Certain statements made throughout this presentation may be “forward-looking” in nature. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking information. As such, undue reliance should not be placed on such statements. Forward-looking statements may be identified by the use of terminology including, but not limited to, “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology.