Japan funds sovereign wealth at below-market rates through BoJ, Hanno Lustig notes

Japan funds sovereign wealth at below-market rates through BoJ, Hanno Lustig notes
Japan’s risky sovereign wealth approach

Japan is operating a risky sovereign wealth fund (SWF) largely financed through borrowed funds, with the Japanese public sector issuing bank reserves at the Bank of Japan (BoJ) at below-market rates. This insight was provided by Hanno Lustig, who highlighted the structure behind Japan’s SWF financing.

Lustig further described Japan's approach to quantitative easing (QE) and yield curve control (YCC) as an extension of its longstanding policy of low-rate financial repression, now with a more market-friendly aspect.

Lustig has previously examined the effects of central bank policies on asset markets. He argued that pandemic-era low rates increased housing prices and led to a wealth shift from young buyers. Earlier, he called for Eurozone bond market reforms to ensure borrowing costs accurately reflect each country’s credit risk.

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