March 10, 2009

Govt To Guarantee Principal On Inflation-Linked JGBs

The Ministry of Finance plans to guarantee the principal on inflation-indexed Japanese government bonds (JGB). By guaranteeing the principal, the ministry hopes that investors will turn to these safer bonds despite their lower interest rates in times of deflation. Recently overseas buyers, the main investors of inflation-indexed JGBs, have been selling their holdings to secure cash during the financial crisis. Plunging inflation risks have only exacerbated this, causing even weaker demand. The ministry does not plan to issue any new inflation-indexed JGBs during the first half of fiscal 2009 while it researches how to make these bonds more attractive to investors.

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