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Talk that the Japanese government may introduce a new tax to help pay for reconstruction costs from the March 11 earthquake and tsunami is helping to increase demand for Japan Government Bonds.
According to an article in the Wall Street Journal, the yield on Japan 10 year bonds fell to a session low of 1.25 percent, which was its lowest point since March 31. The yield settled modestly higher and closed Monday’s session at 1.26%. The increase demand in the bonds is good news as it could be an indication that investors see some confidence in the government’s plans to rebuild. Quoted in the article, Citigroup Global Markets Japan’s senior strategist Maki Shimizu said she expects to see a downward bias to yields toward the beginning of next month.
However, yields in the past week have fallen in other parts of the world in recent days.
The government is now trying to decide how to pay for the costs of building the country’s infrastructure. Increasing tax is only one idea. An article by the AFP released earlier this week said that the government is also looking at the option of creating a special “disaster bond” to help raise funds. The government has estimated that it will costs ¥ 16-25 trillion over the next three years the total cost to rebuild homes, factories and infrastructure, such as roads and bridges. [WSJ] [AFP]