LOOKING TO WIDEN BASE

Ministry goes offshore to diversify holders of JGBs

by Miwa Murphy

NEW YORK (Kyodo) The Finance Ministry is pitching Japanese government bonds to U.S. investors in an effort to diversify the country’s bondholder base, partly due to concerns about Japan’s rapidly aging society.

The ministry recently held a seminar at the Japan Society in New York, drawing about 90 potential investors.

As of December, foreigners held only 4.7 percent of outstanding Japanese government bonds, compared with a 45 percent share of U.S. government bonds and 21 percent share of British bonds.

The government itself holds the largest slice of JGBs, at about 42 percent, including bonds held by Japan Post. Financial institutions hold 34 percent and the Bank of Japan holds 14 percent.

Vice Finance Minister for International Affairs Hiroshi Watanabe, who met reporters after the meeting, said diversifying the bondholder base is the key to creating a “healthier” government bond market.

“The Japanese market has been dominated by domestic investors, and because of the nature of funds invested there, the judgments of participants tend to flow in one direction,” Watanabe said. “Expanding the layers of the bond market would help create stability in the market in many ways.”

Watanabe said U.S. investors are interested in Japan’s fiscal situation — the worst of any major industrialized country, with its public debt reaching around 140 percent of GDP — and how the government plans to restore Japan’s fiscal health.

One way to shore up the country’s debt-ridden finances is to sell government assets such as buildings and stakes in privatized government institutions.

“But selling assets alone is not sufficient,” Watanabe said. “The fiscal restoration measures need to be combined with the government’s overall plan to cut spending and boost revenues.”

Watanabe said U.S. investors appear to believe the structural reform drive launched by Prime Minister Junichiro Koizumi will continue even after he leaves office in September.

He told the U.S. investors that although Koizumi’s reforms have focused on public highway corporations and postal services, the reforms still to be taken up, including those dealing with social security and taxation, will have a bigger effect on the country as a whole.

The ministry outlined a number of government bond products at the seminar, including 10-year inflation-indexed bonds and 15-year floating-rate bonds.

The ministry says the so-called fiscal 2008 rollover issue, stemming from the massive issuance in fiscal 1998 of 10-year bonds under the late Prime Minister Keizo Obuchi, has been resolved, with refunding needs projected to decline toward fiscal 2009.

In fiscal 2005, the government issued more than 100 trillion yen in refunding bonds.

Another official, Chikahisa Sumi, director of the ministry’s Market Finance Division, said questions were raised about whether Japan plans to issue 50-year bonds, which are popular in Britain and France.

Sumi said the ministry is considering that option, but that it intends to “firmly establish 30-year bonds first,” which were introduced in 1999.

He also said there are no plans to issue dollar-denominated JGBs “in the foreseeable future.”