The Bank of Japan now owns almost 60% of Japanese government bonds outstanding, see chart below. This statistic is truly remarkable. As this number approaches 100%, there is no economic theory for what will happen.
As the only G7 central bank, the BoJ has not raised short-term interest rates in response to rising inflation. With the Fed now talking about rate cuts in 2024, the BoJ may end up never raising short-term interest rates during this cycle.
With Japanese interest rates staying low and US rates coming down, the implication for markets is that Japan may return as a US fixed income buyer in 2024.
This presentation discusses this topic and the outlook for Japanese demand for US fixed income.
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