Japanese Govt bond yields drop to lowest level since 2003

The yield on the Japanese government benchmark dropped to 0.826, the lowest level since 2003 as the global demand for yen assets rose more than that of those in dollars and euros. The demand for government bonds as a safe haven has contributed to the gains in the yen against all of its peers which has enabled government to keep its borrowing cost low even as stronger currency threatens export-led growth. The record level drop in the yield is a clear sign of risk-aversion at a global level as countries struggle to prop up their economies on the back of deepening euro crisis.

The positive steps taken by the euro zone leaders at the recently concluded EU summit gives some room for the BOJ to breathe. Had they failed to deliver at this stage and ECB doesn’t announce a rate cut, the BOJ will be pushed to keep up its quantitative easing stance to support the Japanese economy which has been in deflation and slow growth for an extended time period.

The below graph shows the movement of Japanese government bond yield since 2002

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