Japanese government bonds (JGBs) could witness more capital gains despite ultra-low yields, according to the chairman of Lombard Street Research.
Charles Dumas says the economy is unlikely to strengthen as a result of recent quantitative easing and a reduction in interest rates from 0.1% to 0-0.1%.
The business sector will still have no incentive to spend its massive cash reserves, he says, while the household sector still has “bags of liquidity”, at 1.5 times GDP and 2.5 times disposable income. (article continues below)
“The problem is that Japanese businesses hog the income and then waste it on low-return investment, rather than getting it out where it belongs—to people. Given Japan’s slow economic growth, its business needs a lesser share of income than the US, not more,” Dumas says.
“Getting rid of deflation is the goal, first requiring domestic demand to grow. The problem will not be solved until Japan takes on its corporate, cash-hoarding behemoths.”