For the first time in four years, the Ministry of Finance is issuing a new government bond product. Starting this month you can buy fixed-rate, 3-year bonds starting at denominations of ¥10,000. The product is specifically aimed at average consumers, so they are "easy to buy" at banks and brokerage houses. The annual interest rate is 0.19 percent, compounded semiannually, which, after the 20 percent tax, comes to 0.152 percent. New bonds are issued monthly, and can be canceled without penalty after one year.
Compared to bank time deposits, it may not seem like much of a deal to the average saver. A three-year savings plan, albeit for a minimum deposit of ¥1 million, is running about 0.43 percent right now, but the MOF seems to think the new bond will be a popular product. (The MOF also offers its usual 5-year, fixed rate bond at 0.42 percent, and its 10-year, variable rate bond at 0.48 percent. These are issued four times a year.) After the so-called Lehman Brothers shock, securities companies surprisingly sold a lot of government bonds at about the same interest rate, apparently because consumers thought it was a safe investment in the midst of all that financial uncertainty. The MOF hopes this feeling is still at large, because it needs a more stable investment base.
As of the end of 2009, the Bank of Japan estimates that ¥830 trillion of Japan's national debt is in government bonds, of which ¥340 trillion is held by financial institutions; ¥170 trillion by insurance companies and pension funds; ¥90 trillion by various government entities, central and local; and ¥35 trillion by individuals, accounting for only 4 percent of the total, which is even less than the percentage held by foreign investors (about ¥50 trillion). The MOF wants to increase the amount of bonds held by individuals because bonds for individuals are non-marketable securities. Their value is fixed, since they cannot be traded on the bond market.