Econintersect: If you are worried about safekeeping for you cash and are worried that a bank failure where you could deposit it might result in a bail-in confiscation, the Japanese government has a deal for you; They will store your money for free for five years. You give them ¥1 million (U.S. $8,403.36) today and they give you a guarantee to return that ¥1 million in five years. That guarantee is called a five-year Japanese government bond. On 12 January 2015 the yield on that security dropped from 0.006% to 0.000%.
According to the Bloomberg the free storage may be a bargain because they report the 'ask' for the bond is now -0.005% and to get the repayment guarantee you might have to agree to accept less than full repayment at maturity.
Japan is now competing with Germany in the "free storage" business. Germany's five year bund went to 0% yield 02 January 2015 and has bounced both sides of zero since. See charts bepow from Bloomberg and Investing.com.
Of course there are a few other things to worry about with this "safe keeping". For example, if you are an American investing U.S. dollars, they are converted to yen to make the purchase from Japan. Right now you would pay $8,403.36 plus any currency exchange charge. In five years the mature bond will repay your principal (¥1 million) and it will convert back to dollars at the future exchange rate. Of course we have no idea what that might be, but some have suggested that the rate then might be much less favorable than now, 200 yen to the dollar, say. Then your guaranteed repayment would be $5,000 instead of the $8,403.36 you had originally submitted for safe keeping.
Think that sounds improbable? Well, consider a 2-year Japanese bond you could have bought two years ago today. The cost in dollars for a ¥1 million bond would have been $12,195 (USD/JPY was 82). Today your principal would be returned at the current exchange rate of 119 and you would have $8,403.36.
- Japan Joins Germany With Five-Year Government Yield Evaporating (Wes Goodman and Shigeki Nozawa, Bloomberg, 12 January 2015)
- German Government Bonds 5 Yr Obl (Bloomberg, 13 January 2015)
- Japan 5-Year Bond Yield (Investing.com, 13 January 2015)
- Germany 5-Year Bond Yield (Investing.com, 13 January 2015)