Bloomberg: Japan's Abe to Create 50 Trillion Fund to Buy Foreign Bonds Including US Treasuries?

Shinzo "pork-cutlet-over-curry-rice" Abe is going to be the best friend of Ben "Blackhawk helicopter" Bernanke.

Bloomberg News quotes Nomura Securities, JP.Morgan, and ex-BOJ deputy governor among others who say the Abe administration has pledged to create a 50 - 100 trillion yen (US$558 - 1,116 billion) fund to buy foreign debts, with more than half that money going into the US Treasuries.

Abe's rationale? To make absolutely sure that Japanese yen gets depreciated and inflation rises, which he seems to consider as a sign of robust economy.

Well, I seem to recall a headline several days ago that Mr. Bill Gross of PIMCO, the world's largest bond fund manager, had raised the holding of US Treasuries in December. If these analysts in Japan knew (they talk like it's a given that Abe will create such a fund), Mr. Gross would have known about it long time ago.

From Bloomberg News (1/13/2013; emphasis is mine):

Abe Aids Bernanke as Japan Seen Buying $558 Billion Foreign Debt

Shinzo Abe is set to become the best friend of investors in Treasuries as Japan’s prime minister buys U.S. government bonds to weaken the yen and boost his nation’s slowing economy.

Abe’s Liberal Democratic Party pledged to consider a fund to buy foreign securities that may amount to 50 trillion yen ($558 billion) according to Nomura Securities Co. and Kazumasa Iwata, a former Bank of Japan deputy governor. JPMorgan Securities Japan Co. says the total may be double that. The purchases would further weaken a currency that has depreciated 12 percent in four months as the nation suffers through its third recession since 2008.

The support would help Federal Reserve Chairman Ben S. Bernanke damp yields after the worst start to a year since 2009, according to the Bank of America Merrill Lynch U.S. Treasury Index. Government bonds lost 0.5 percent as improving economic growth in the U.S., Europe and China curbed demand for the relative safety of government debt even with the Fed buying $45 billion in bonds a month.

“I can’t imagine the U.S. would be disappointed in Japan buying Treasuries,” Jack McIntyre, a fund manager who oversees $34 billion in global debt at Brandywine Global Investment Management in Philadelphia, said in a Jan. 8 telephone interview. “The Fed’s been doing all the heavy lifting.”

...Strategists are already paring back bearish forecasts for U.S. debt. The 10-year Treasury yield will rise to 2.2 percent by year end, according to the median prediction of economists in a Bloomberg survey. In July, the estimate was 2.7 percent.

Hiromasa Nakamura, a senior investor for Tokyo-based Mizuho Asset Management Co., which oversees the equivalent of $38 billion, is more bullish. Ten-year Treasury yields will fall to a record low of 1 percent by year-end as Japan ramps up purchases, while the yen falls to 90 per dollar, he said in an interview on Jan. 11. Japan’s buying “will be one of the positive factors in the market.”

...The fund could be twice that size or more as “there’s no upper limit,” said Masaaki Kanno, the chief Japan economist for JPMorgan and a former BOJ official. Abe can hold off on unveiling a large plan now until the next time the currency starts to appreciate, Kanno said by telephone Jan. 11.

...Whatever the foreign bond fund’s amount, more than half will probably be funneled into Treasuries because they are the most easily-traded securities, Yoshiyuki Suzuki, the head of fixed-income in Tokyo at Fukoku Mutual Life Insurance Co., which has about $64.8 billion in assets, said on Jan. 8.

(Full article at the link)

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