The government has been paid at least ¥52 billion to borrow money since the yield on its debt first fell below zero at auction in October 2014.
While some of the bonds still pay coupons, prices on the securities are so high that the Ministry of Finance sells them for more than it costs to pay interest on the debt. Bloomberg calculations count money made on bills and notes that now have negative yields out to five-year maturities.
Japan follows Germany, Switzerland and Sweden in being able to get investors to pay it to raise funds, a windfall that will help Prime Minister Shinzo Abe tackle the world’s largest debt burden. On the downside, Bank of Japan asset purchases and charges on some lenders’ reserves have reduced bond-market activity and squeezed earnings for banks and their customers.
“This is a plus for the nation’s immediate finances,” said Hidenori Suezawa, a monetary and fiscal analyst at SMBC Nikko Securities Inc. “However, it will only slow the pace of increase in the national debt, not actually cut it.”
Bloomberg’s calculations totaled the difference between auction prices and what the nation has to return to investors in coupon payments and when the bond matures. It does not include positive-yielding debt or other costs for fundraising.
The Finance Ministry declined to comment on negative yields or provide an estimate of how much money was generated. Any money secured at bond auctions above what the ministry had budgeted for is used to repay notes reaching maturity in the following financial year.
The ministry will pay a total of ¥100.50 to purchasers of the current five-year bonds: ¥100 when it matures in five years, and a 0.1 percent interest payment each year. The five-year note sold last week at ¥101.16, meaning that the ministry received more from buyers than it has to pay out over the life of the debt.
The 22 primary dealers purchase the notes at what is ostensibly a loss because they can then sell the securities on the secondary market for more than they paid for it, with prices driven up by the Bank of Japan’s purchases of debt.
“Cutting rates, even if they don’t go negative, is income redistribution that is a plus for borrowers and a minus for lenders,” said Masaaki Kanno, JPMorgan Chase & Co.’s chief Japan economist. He estimates that the BOJ’s negative-rate policy has pushed the whole yield curve down by 20 basis points, giving a windfall of ¥500 billion to ¥600 billion to the government in the next fiscal year, which starts in April.
The benchmark 10-year Japanese government bond yield dropped to a record low of minus 0.06 percent on Thursday in Tokyo.
The result of the BOJ’s bond purchases and other policy measures is that about 70 percent of Japan’s outstanding interest-bearing debt has a negative rate in the secondary market, and with inflation still nowhere near the 2 percent target, the central bank’s buying will continue.
Japan’s national debt was almost ¥1,045 trillion at the end of December, and the country plans to sell a total ¥152.2 trillion of bonds to financial institutions next fiscal year, including new revenue securities and rollovers of older debt.
“Japan didn’t save up enough when its tax revenue was better than expected,” said SMBC Nikko’s Suezawa. “Given how the global economy enjoyed a long expansion period, it wouldn’t be a surprise if we’re entering a more dangerous era.”