The Bank of Japan’s ultra-loose monetary policy has made it an outlier among global central banks, which have been hiking rates in response to rising inflation. While this approach has helped stimulate the Japanese economy, it has also created a potential risk that some experts are increasingly concerned about – the possibility of a decade of repatriation.
As the only major central bank still pursuing a loose monetary policy, the Bank of Japan’s actions have resulted in a flood of cheap yen flowing into global markets. This has fueled investments in foreign assets, including bonds, by Japanese investors seeking higher yields. However, with other central banks now raising rates, the yield advantage of foreign assets is diminishing.
This could lead to a significant repatriation of funds back to Japan, as investors seek to take advantage of higher yields domestically. Such a repatriation wave could have far-reaching consequences for global markets, potentially causing bond yields to rise and putting pressure on other currencies. Additionally, it may disrupt the delicate balance that central banks have been trying to achieve in their efforts to normalize monetary policy.
While the Bank of Japan’s ultra-loose monetary policy has helped support the Japanese economy in recent years, it is important to recognize the potential risks associated with such a strategy. As other central banks continue to tighten monetary policy, the possibility of a decade of repatriation looms large. It is a risk that experts are increasingly worried about, as it could have significant implications for global markets and the stability of the financial system.