Macroeconomic underpinnings of the increase in Samurai bonds
The increase in samurai bonds was mainly to investment by foreign investors who were earning money for their treasuries. These could affect the Japanese economy because the intention of lowering the interest rates was to increase the marginal propensity to invest among the Japanese national and corporate organizations. This however did not happen as individuals continued to increase their savings in bank accounts that paid a low-interest rate.
Corporate organizations’ shied off from taking advantage of the reduced interest rates mainly due to the economic booms experienced in the 1980s and early 1990s. The effect of this increase in samurai bonds may not be felt by the Japanese government and the government economy as the earnings will be diverted to other countries which took advantage of the low-interest rates to invest in the bonds.
How might an increase in Japan’s rate of economic growth affect the vitality of the samurai bond market?
An increase in the economic growth of any economy would bring about several effects on the economy and the people In general. An increase in economic growth would mean an increase in employment levels, which in turn leads to increases in disposable income and the overall income of individuals and corporate organizations. Human beings, being rational would seek ways to employ idle amounts of money.
Due to the confidence that the growing economy would have brought in most of these individuals, they wou8ld consider taking advantage of the low-interest rates that the government is offering. As a consequence, the bond market would become more active as individuals invest in securities that yield high returns, in the long run, because the economic rate of growth is increasing. In other words, there would be a lot of speculation on the future of the capital markets, which in turn would increase activities in the bond market.
Higher costs
If a company decides to invest in a foreign country, it must be ready to bear some cost to offset the low-interest rates in the foreign countries. These costs include the high taxes to be levied by home countries on the income from foreign investments. The magnitude of these taxes depends on the country in question as policies differ from country to country. Higher costs may be incurred in the foreign countries on the costs of doing business in foreign countries. This also may vary from country to country depending on the policies set down in particular countries.
What would happen if the yen appreciated against the dollar?
If the yen appreciated ageists the dollar, then foreign investors in the bond market would increase as they strive to make more men out of the low-interest rates being offered by the Japanese government. This means activities from the foreign investors would increase as those from local individuals and corporate organizations reduce, due to the low income associated with investments in terms of the dollar. In general, we can say that foreign bonds are good if the local currency remains the same as at the date of issue. This is because if the currency is appreciated against the international currency, then this may discourage local individuals and organizations foreign from investing.