Japan's finance ministry plans to issue new bonds this year worth a total of ¥36.9 trillion ($309.1 billion). The country's central bank, meanwhile, is planning to buy ¥80 trillion of the debt, under its expanded quantitative easing programme. It's a bold attempt to support the economy and help hit a 2% inflation target, but it has some risks – not least that the Japanese government bond (JGB) market might grind to a halt if the Bank of Japan (BoJ) hoovers up all the available supply.
The BoJ's deputy governor, Hiroshi Nakaso, doesn't seem the type to take fright easily. The BoJ will hit its 2% target, he insists, and it will continue buying bonds until it has achieved its goal. That should come in the first half of the 2016 fiscal year, he predicts, oil prices permitting.
Nakaso admits the depth of the JGB futures market has suffered since the central bank expanded its bond-buying programme in October last year – as demonstrated by analysis the BoJ published in August – but not to the extent that quantitative easing will need to be reined in, he says.
Over at Japan's Financial Services Agency (FSA), Shunsuke Shirakawa is a similarly forthright character. The deputy commissioner for international affairs is calling for the Basel Committee on Banking Supervision to help clarify the status of the counter-cyclical capital buffers that members states are obliged to introduce as part of Basel III. Supervisors are free to set these buffers at 0% – as the FSA will, says Shirakawa, while economic growth is still fragile – but banks that are active internationally will be subject to the buffers of every country in which they have exposure, and many have not yet implemented them. Shirakawa wants the relevant information for each state to be published on the Basel Committee's site.
In Europe, things are made more complicated by the fact that some member states of the EU are not members of the Basel Committee and may, or may not, be required to introduce the buffers. Clarification is "urgently needed", Shirakawa says.
The BoJ will hit its 2% target, he insists, and it will continue buying bonds until it has achieved its goal
In addition, he mentions the FSA is considering the possibility of using Japan's deposit insurance system as a backstop for central counterparties – an intriguing idea, but one that would need parliamentary approval – and also lifts the lid on a cross-border dispute with the Commodity Futures Trading Commission.
There are some concerns shared by both men. As Japanese banks expand internationally, they must ensure they have stable funding in currencies that match their new assets, they warn – and both also strike a cautionary note on expanding bank capital requirements. Once the current programme of work is complete, says the BoJ's Nakaso, "we need to ensure the right communication with banks and tell market participants that additional prudential regulations will not be introduced for some time".