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Japan Hits the Bond Market

|Includes: AAXJ, DNL, Japan Equity Fund (JEQ), JOF

Japan will soon hit its bond market with a near record $110 billion of new paper to finance its emergency economic stimulus program. Anticipation of the program has already pushed yields on the JGB to 1.46%, a high for the year, up from 1.21% in January. With short term interest rates at zero and the world’s lowest long bond yields, there is little doubt the government will pull this off, according to Sean Maloney, interest rate strategist at Nomura Securities. Nearly twenty years of weak domestic growth and a decently growing money supply have created a structural oversupply of capital in Japan, an endless cash glut, and a shortage of high grade, low risk investments. The bigger question is whether this splurge will make any difference. After building 1,000 “bridges to nowhere” during the nineties to cope with a “lost decade”, no country has more conclusively proven the futility of government stimulus spending on public works than Japan. Is Obama about to make the same mistakes in the US?