Changing Ship Finance Landscape in Japan

With the headlines focusing on Japan’s recovery from its decade-long deflation, Japanese companies will be keeping a watchful eye on any changes in the central bank’s monetary policy that will eventually impact their bottom lines in the near future.

As for now, shipping companies in Japan continue to have their appetite for capital satiated by an abundance of lowly-priced debt financing from domestic banks. Despite a quarter point benchmark interest rate hike to 0.5 percent in February, Japanese interest rates remain the lowest among the developed nations. The ultra low interest rates coupled with the depreciating yen have resulted in investors borrowing yen massively to invest in higher–return assets commonly known as carry trade. This phenomenon has been widely blamed for driving up global asset prices and worsening global capital flow imbalances. While it is difficult to quantify the scale of the carry trade, Hiroshi Watanabe – Japan’s Vice Minister of Finance for International Affairs has projected it to be in the range of $80 billion to $160 billion. In early March this year, the yen surged unexpectedly to a three month high against the major currencies, resulting in a frantic unwinding of this carry trade as investors reduce their positions in the declining global equity markets to mitigate their currency losses.

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