* Japan to offer 300 bln yen of inflation-linked bonds in
* Rising asset prices could lift inflation expectations
By Lisa Twaronite
TOKYO, Sept 9 One early Tokyo Olympics winner
could emerge next month, when Japan holds its first offering of
inflation-linked bonds in five years.
Tokyo's successful bid for the 2020 Olympic Games is likely
to fan inflation expectations, which in turn should kindle
demand when the Ministry of Finance offers the first tranche of
300 billion yen ($3 billion) of 10-year inflation-protected
bonds on Oct. 8.
"Wherever the Olympics is held, real estate prices tend to
go higher. That speculative money might come into Japan, and
that might help alleviate deflationary pressure, so it's
positive for inflation expectations as well," said Tadashi
Matsukawa, head of Japan fixed income at PineBridge Investments.
"To that extent, I think it's positive for inflation-linked
bonds," said Matsukawa, who is considering buying some for his
The coming Tokyo Olympics could have a slightly negative
effect on Japanese government bonds overall, to the extent that
they push up stock prices and heighten fears about Japan's
Japan's public debt is double the size of its $5 trillion
economy, the biggest among major industrialised nations. The
Olympics plan estimates a non-Games budget of about $4.4
billion, compared with $3.4 billion for the actual event, and
already has a war-chest of some $4.5 billion in the bank.
On the positive side, the Tokyo Olympic bid committee said
hosting the Games will add some 3 trillion yen to the economy.
This jolt would come on top of the Bank of Japan's massive
monetary easing under which it will nearly double the monetary
base to 270 trillion yen by the end of 2014 to achieve its 2
percent inflation target.
There's a long way to go: Japan's core consumer prices rose
0.7 percent in July from a year earlier, marking the second
straight month of gains and hitting a near-five year high, but
still well shy of 2 percent.
Japan's finance ministry issued inflation-indexed bonds from
2004 until 2008, but halted when the global financial crisis
cemented deflation expectations and demand for them dried up.
Unlike the old instruments, in which the principal increased
in line with inflation and decreased in line with deflation, the
new bonds will have a principal guarantee component, so their
principal will not fall below a set floor even if prices resume
dropping. That could make them more attractive to investors who
fear deflation as much as inflation.
"Japanese aren't used to inflation, so they have no mental
need to hedge, and I don't think there are enough sophisticated
investors who believe inflation needs to be hedged in Japan,"
said Shogo Fujita, chief Japan bond strategist at Bank of
America Merrill Lynch in Tokyo.
"The inflation-linked bond market has always been an
foreign-investor driven market, and I think it will remain so
for the foreseeable future," Fujita added.