How The Rising Dollar FX And Flattening Yield Curve Is Leading Japanese Investors To The Slaughter

There are many other risky areas where Japan has become a large buyer, including; Australian Residential Mortgage Backed Securities, Emerging Market Bonds, and Aircraft Leases. Japan’s financial institutions have desperately sought the higher yields on offer not only to compensate for higher hedge costs but also their dire domestic earnings outlook as the Bank Of Japan (BOJ) suppresses domestic interest rates below the break-even rates that many of these institutions need to remain profitable. A former BOJ Board member Takahide Kiuchi warns “there is no doubt that as a side effect of monetary easing, financial institutions are taking excessive risk”. (Japanese) Banks are investing in products that yield too little relative to the risks involved. You tell banks to stop it, and then they go elsewhere to find opportunities — it’s whack-a-mole”.