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Japan-Update

Japan to cut superlong-bond offerings amid shifting demand

Average JGB maturity to decline in fiscal 2018 as insurers' appetite wanes

TOKYO -- Japan plans to issue fewer 30- to 40-year bonds next fiscal year as demand for superlong debt instruments is expected to decline among institutional investors, according to an Finance Ministry offering plan to be finalized Friday.

As a result of the adjustment, the average maturity of newly issued Japanese government bonds will shrink to around nine years for fiscal 2018, the first decline in nine years.

The average maturity of newly floated bonds stands at nine years and three months for fiscal 2017 based on an estimate released in October, rising steadily from seven years and three months in fiscal 2009.

The fiscal 2018 float appears likely to decrease for the fourth straight year, dropping to 149.9 trillion yen ($1.32 trillion), with a noticeable reduction in ultralong-term bonds. Issuance of 40-year JGBs will decline for the first time, falling 600 billion yen to 2.4 trillion yen. The 30-year debt float will dip for the first time in 17 years, sliding by 1.2 trillion yen to 8.4 trillion yen.

The Finance Ministry has taken advantage of low interest rates from the Bank of Japan's quantitative and qualitative easing policies to lengthen maturities on JGBs. Issuing those instruments under low interest rates helps reduced debt-servicing costs.

But life insurers are losing their appetite for long-term bonds. Estimating that ultralong-term debt will account for more than half the value of outstanding JGBs in fiscal 2024 at the current pace, the ministry has decided to shorten maturities.

Interest rates in the U.S. and Europe are starting to rise as the Federal Reserve trims its balance sheet and the European Central Bank tightens policy.

(Nikkei)

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