Following Japanese Models?

Tyler Durden's picture

Perhaps those sage English philosophers 'The Vapors' were on to something 32 years ago when they asked if we were "Turning Japanese" for it seems the following charts from Nomura certainly suggest the US bond market is heading in that direction. From demographics to monetary policy; from investor allocations to flows; and from bond bubbles and volatility to long-term interest-rate paths, it seems we share a lot more than a love for sushi and pachinko with our neigbours across the ocean as we seem to be chasing after many Japanese models (of asset allocation and macro-economics).


Via Nomura:

In the three years since the Great Recession ended, real GDP has grown at a lackluster 2.2% pace. Demographics play some role among structural factors holding back the recovery. The US and Japan are both dealing with an aging population and lower birth rates.

Slower population growth coupled with a greater share of the population aged 65 and older likely enhances the degree of risk aversion on average. Moreover, based on the life cycle model, elderly people tend to de-cumulate savings, which means less investable money. A natural conclusion of these arguments is reduced money flow into risky assets/real estate such as equity and homes.

Monetary Policy
On the monetary policy side, the Bank of Japan is a pioneer of non-conventional monetary policy tools including QE and a commitment to the future path of the policy rate. In March 2001, the Bank of Japan introduced a quantitative easing target, which was designed to increase the size of the current account balances held at the Bank of Japan, mostly bank reserves. At the same time, they committed to continue the quantitative easing until “deflationary concerns were dispelled.”

Much is made of the Fed being faster and bigger in the extreme monetary policy experiment than the BoJ was - as seen below...

Some limits of the Fed’s monetary policy: Based on the past experience, BOJ launched new asset purchase programs after the Great Recession under which they extended their scope to private risky assets (ETFs and REITs) (Figure 1). This is the direction of evolution of BOJ’s QE. However, the FRB technically is not able to purchase private assets. Given that the agency MBS market is not likely to expand in the near future, the Fed would face liquidity issues if they continue QE3 for an extended period. Moreover, in terms of setting quantitative thresholds to end the zero interest rate policy, the Fed should care more about the balance between inflation risks and boosting economic activity than the Bank of Japan.

However, after all that QE by the BoJ, they remain in a far worse place now than 20 years ago (from an economic point of view, an equity market perspective and a sovereign debt / leverage perspective) and perhaps the US has merely to revert to reality.

Investor Allocation To Bonds

The most apparent difference is that over the past 20 years, the US domestic investor base has reduced its UST exposure overall, whereas Japanese domestic investors have increased their holding of JGBs. This is important because many in the marketplace seems to assume that the Japanese have always owned JGBs and thus have always been able to finance their debt internally, whereas the US needs foreign investors to buy its debt. This also means that currently, US investors start from a lower base and thus have the potential to allocate more to USTs if they wished.

Japanese JGB buying had to start somewhere – and the accumulation phase began soon after their bubble burst. Prior to 1989, the investment culture in Japan was very similar to the US in the 1990s and 2000s (i.e., not risk averse). Currently, US Treasury buying has already started to pick up among the domestic investor base, similar to the ramp up in Japan around the mid-1990s. We continue to believe that more UST buying lies ahead with the domestic investor base.

Where's the bond bubble there?

We understand we cannot just extrapolate the trend of the JGB’s buyer base to see what is in store for USTs. And we reiterate that we do not believe that US investors will follow exactly the Japanese example. But even if we only see half of the sort of government bond buying behavior that occurred in Japan, we can expect US domestic accounts to acquire large amounts of UST debt in the years ahead.

Even a small convergence to the Japanese multi-year government bond buying trend by US investors will result in sizeable amount of UST buying (in terms of percentage of assets in government bonds). This buying could occur across many investor types that are currently hovering around multi-decade low allocations to USTs. The current global regime, with UST continuing to benefit from the flight to quality bid amid crises elsewhere, as well as the regulatory need for high quality collateral, should add tailwinds to the UST story of the domestic buyer base revival.

Corporate Bond Spreads and Volatility

One of the most frustrating outcomes from the Japan’s lost decade, especially when QE and ZIRP were in full effect, was the declining trend in corporate borrowing, where Japanese corporates were more inclined to pay down debt than take on new debt, even with zero rates. Corporate deleveraging was at play as companies grew defensive after the Japan credit crisis and attempted to keep inventory and capital investments below cash flow generation.

The same deleveraging process has been happening in the US, but we saw very different reactions by corporate borrowers. US corporates seized the moment of low rates for longer, first thanks to the FDIC guarantee of bank debt right after the crisis, and then the Fed’s unprecedented easing responses brought back the animal spirits in the debt markets and hence investor demand went further out the credit spectrum.

The chart above nicely sums up the different trends in corporate issuance in US versus Japan. In this chart we plot the quarter-on-quarter growth, on a 1-year rolling basis the increase in the total size of the credit markets in the US and Japan. We indexed both countries credit growth rates to the start of their QE programs (2001 for Japan and 2009 for US). Despite the fact that both governments took bold measures to avoid corporate bankruptcies and each central bank introduced monetary easing, the US managed to keep issuance in positive territory.

However, we caution that just because policy rates were anchored for years in Japan, it doesn’t mean that there wasn’t spread volatility (as is clear in the chart above). Moreover, there was a limit in how tight spreads went as well. We highlight above the unique credit dynamics amid low rates.

And Finally, take a look at these 6 charts... Are We Really Turning Japanese?


We really think so...

Source: Nomura

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Ray1968's picture

I want the Japanese hottie picture... not a graph

BTFDemocracy's picture

Right click-> "Set ass wallpaper"


Zer0head's picture

Dear Japan (and in due course America)

your future owners are about to start day two of their China Congress


TwoShortPlanks's picture

I feel much better with more porn......please!

Stackers's picture

Too bad the U.S. isnt an export power house with the highest personal savings rate on the planet like Japan......

TruthInSunshine's picture

We're absolutely turning Japanese. I was listening to NPR (I swear it was for a traffic update) tonight and they had a segment on about Nebraska farmland being bought by "investors" (knowing nothing about farming) for 5 times (11,000 to 22,000 per acre) what it was selling for 5 years ago. This was loamy soil acreage good for corn.

The kicker was that they interviewed a broker who specializes in selling farmland in that area, as well as a fund manager out of Singapore (British guy) who is loading his clients' portfolio up with such farmland, and his basis for doing so was that he hoped to eek out a return greater than what 10 year treasuries are paying.

First, anyone who knows anything about farming will tell you that even with corn at $8/bushel, you're not going to strike it rich with 100 or 200 acres (you're going to need to scale up to 1,000 or more acres to generate serious cash flow).

Second, commodities, and especially crops, are extremely volatile and vulnerable to many factors totally outside the control of the farmer, and one amazing year can be followed an immediate catastrophe year.

The ones who make money in that space are the intermediaries that process the grains, and the commodity traders, as well as other middlemen (like ADM & Cargill).

This is what The Bernank has sown with his Broken Markets Model chock full of pent-up disaster and yield starvation; getting people with zero knowledge of farming to pay a 500% markup for acreage.

TruthInSunshine's picture


We should ship fractional reserve wanking bankers to outer space.

Bullard is citing research and claiming that Fed Monetary Policy may be considerably looser than they had thought, with a -5% NIRP, essentially (gee, really Bullard? You don't say...).

This appears to be consistent with the move the BOE made in calling off QE, as they concluded it was ineffective.

Shit's going to get real, really fast, bitchez.

Fed's Bullard: Current Monetary Policy May Be Easier Than Thought

New thinking on monetary policy suggests the Federal Reserve's current stance may be even more aggressive than many now understand, a U.S. central bank official said Thursday.

Recent academic work suggests the policies now being pursued by the Fed "may currently be easier than the recommendations" suggested by traditional rules of thumb like the Taylor rule, Federal Reserve Bank of St. Louis President James Bullard said.

Relying on the work of Leo Krippner of the central bank of New Zealand, Mr. Bullard said this new thinking suggests the policies now being pursued by the Fed leave the funds rate as equivalent to a negative-5% rate.

"This value is considerably more negative than values recommended by common monetary policy rules," Mr. Bullard said. This so called "shadow rate," the official said, is "currently more than 300 basis points lower than the rate recommended by the Taylor rule."

AldousHuxley's picture

Peter Thiel predicted US following Japan in 2007ish in "Inside the House of Money". US Trends follow Japan


However, US has 4 key differentiators:

1) world super military power....can leverage military force to open markets and control world energy supply and prices

2) global currency...export inflation to manufacturers (china) and energy suppliers

3) illegal aliens perpetuating population many illegal aliens are there with less than 2 kids per parent

4) dumbass citizens conditioned to consume to the max credit capacity




Thiel also had 2004 predictions

  • Oil to rally
  • Equities overvalued especially financials
  • housing bubble with fannie mae

which all came true...


also cashed out facebook stocks early = meaning predicting bubble to crash soon....FB down big so far.



BandGap's picture

There is an awesomely interesting study out there of how the female Japanaese body has changed since the US occupation in 1946. One of the biggest changes was diet. For instance, virtually no one in Japan drank whole milk prior to the US occupation post WW2. After that, studies have shown that Japanese women's breast sizes have grwon considerably, and females begin mensing aprroximately two year earlier than was the case prior to US occupation.

The wonders of western style nutrition!

Marco's picture

Those money makers still have to reinvest their money into something ... you can't invest in the middle man business even if that's where the money is, there is only so much to cream off the top after all.

maximin thrax's picture

It sounds like some of the Dollars sloshing around the globe are coming home for conversion into something tangible, as many hyperinflationists predicted.

El Tuco's picture

I hate to tell you this but China is fucked. Everyone is stealing from everyone. Slaves keep working with no hope of ever catching up. Machines are replacing factory labor. Wages are not competitive anymore (Mexican labor on par with Chinese). As of December 1st shipping rates are rising $15 USD per cubic meter (they are $85USD at the moment). Container rates are going up by at least 10 - 15 %. Suppliers are crying for more business. The whole fucking economy is starting to roll. 1st world is stretched like a rubber band ready to go. Believe nothing you hear or read from the MSM. Business is suffering in N.America unless of course you have military contracts.

I tell people if your working and keeping your head above water consider yourself lucky. That other shoe feels like it is going to drop soon and I don't know what to expect.

JLee2027's picture

I'm shocked, shocked I tell you. Everyone stealing over there? You mean China won't be the next world Superpower and take over the planet? I'm shocked, shocked I tell you. /sarc off

Jack Napier's picture

You are forgetting one thing. He who has the tungsten makes the rules.

ACP's picture

Or if the shoe was made in China, the sole would be dropping off the shoe. So that means the sole is going to drop soon?

dark pools of soros's picture

very true..  and here you don't fight to get a raise, you do so just to keep your job..   having bene's is becoming very rare..  they plan to force everyone to be contractors and buy obamacare

The Navigator's picture

seek - you came by that link awfuly fast ;->

BTW, thanks, Arisa Oda is a real eye candy.

seek's picture

My google-fu is strong.

Larry Dallas's picture

We've got bush! We've got bush!

Fredo Corleone's picture

One of WB7's Visual Combatants...

"BanZAI !"

Jack Napier's picture

I didn't realize WB7 had an online store. Now I know why the Keiser Report plugs him so much. Don't we have enough sucking parasites already?

ebworthen's picture

You put your Lithium prescription in the second drawer of your dresser, under your argyle socks.

LongSoupLine's picture

...and to the left of your ass dildo.

williambanzai7's picture

Go fuck yourself asshole.

Guess what, you are the parasite.

I challenge you to find one post, anywhere, with an advertisement for the Banzai7 store in 2012. Check all the links and banner ads on all the third party sites that post my images and see if you find any advertisements for Banzai7. Go check my websites to see if you see any google ads as well.

The answer is none.

Of course, if I was actively promoting that store, I would not be promoting to self entitled assholes such as yourself, who think everything in the world is now free.

And BTW, did I remember to tell you to go fuck yourself again for good measure?

LongSoupLine's picture

lol..sick 'em William.


On a reality note, we all know who you are William.  Don't let one ball mouth ass ape ruin your day.

TruthInSunshine's picture


Banzai, you running dog of capitalism!!! You charge money for the time that you spend and creative work that you do, and then offer it up for sale to willing buyers!!!! That's terrible and you should be ashamed of yourself!!!! Get on the dole and swipe yo' EBT card or apply for Primary Dealer status and then buy Timmmay lunch at Per Se and become Too-Big-To-Fail!!!





PLira's picture

If your in the mood for East Asian Cusine, this is MSFW.

BTW, the menu changes daily there.

Ray1968's picture

I've seen those pictures for every Asian massage parlor on backpage. Which reminds me....what time is it? I'm late for my appointment.

max2205's picture

Forgot to add obamacare and snap ect

Overfed's picture

That's the hottest ornamental I've ever seen.

lolmao500's picture

Japanese models... aka 12 years old girls.

Japan as a society is totally fucked up.

PLira's picture

Not as a society per se but, their mindset on shit is seriously deranged. Ever since Godzilla on...

I guess as the society ages, the old men get a kinky. lol

knukles's picture

Whoa, dude....   easy on the Godzilla thing.
Stretching out some serious cultural bounds there.
Thousands of people wanted the honor to be the gimp in the smelly rubber Godrirrah suit.
I mean, that's like calling a Democratic millionaire Upper East sider a rednick hick and his wifie all decked out in Hoochiekoochie Gucci fashion a crack whore.

Talking about redneck hicks....

During the Libyan Arab Spring #1, it was said that Gaddafi and his cronies had well over $150 million (probably more like well into the billions) stashed in overseas accounts which had been then, summarily frozen by the host governments, the US, UK, etc.

So just where the fuck did that money go?

Inquisitive minds like to inquire...


PLira's picture

Dude, you are always good for a chuckle, seriously. Keep up the good work.

As for the money chain, no one will ever know. That's what the whole banking thing is about, rape, pillage, profit and poof, it's gone.

Manic by Proxy's picture

Apologizing in advance: I do have a little yen for a 12 year old model.....

fonzannoon's picture

The US will not turn Japanese. Thats not how we roll. We go big with everything. We may actually overshoot the Japanese and get rates to 0% on the ten year, but eventually we will pop. My guess is somewhere between gold at $2,500 and 3k enough of the smart money will have gone away.

I just don't think we will get the satisfaction of it actually happening. One day we wake up and the stock market and bond markets are closed due to technical difficulty. they won't give you the satisfaction of winning on your treasury short or your GLD long. It will all be Corzined. Game over.

PLira's picture

And probably the banking system with it.

Got cash?

The E Coast woke up to being bank account long, short cash and no way to access.

Then there is the EBT problem.

Got guns? Staten Islanders, among others, sure wish they did. The window is closing though.

Fonz can surely attest.

Prepare accordingly.

fonzannoon's picture

Excatly right. I went to 7-11 to get a coffee 2 days after Sandy hit. Some woman was smashing the ATM with her fists and cursing. I said "It's scary haw far away from your money you are right now eh?" She looked at me like i was crazy. Dumbass.

Orly's picture

I think you're exactly right, fonz.  It's not how we roll.  We're going to go in big and when it fails, we'll say, "Hey, you know what?  This ain't working."

The Japanese idea is to still save face, for a public embarrassment is the worst that can happen to a person.  Anyone but me remember all those stories about Japanese businessmen committing suicide through various ways back in the early nineties, after the crash; jumping out of buildings, high-speed trains, the tried-and-true harikiri?  They felt personally responsible for the bad image of the company.

Flash Forward. Couple days ago: huge APPL mistake; buying 125,000 shares every half-hour?  Holy smokes.  Bove is toast, Rochedale is history and still debating where to send the carcass.  Anyone see the trader that made such an error on a train track in Upper Manhattan?  Of course not.  He says, "Screw them.  Joe's the one told me to do that.  I'll flip burgers if I have to to support my family."

Huge difference in cultural and corporate ideals that certainly mitigate any preponderence of "extend and pretend" for 25 years just to save face.  Not in America.


adr's picture

I don't like Japanese models. They sound like they are dying when you're doing them.

Nice to look at though.

To each his own I guess.

Oh, we were talking about economics. Since Americans usually get one for free from the company they are doing business with, you'll have extra cash to buy more soba noodle for lunch.

lolmao500's picture

They sound more like they are crying but that's just me.

The Japs as a culture was great back in the 1800s... now? Not so much. Women are treated like crap. The young generations hates sex. Their polite/don't talk about the elephant in the room ways will cause million of cancers because of Fukushima.

They give their life and soul to their job, even if it destroys their family or if their company screws em over.

Pedophilia is basically legal in Japan and encouraged.

I like Japan overall because they are crazy... but great civilizations aren't built by the current Japanese generation... they are destroyed by them.

Yes_Questions's picture

In the three years since the Great Recession "ended"





Sabibaby's picture

These were not the pictures I was expecting!

Bansters-in-my- feces's picture

Hey.....!!!! Where did those yummy Japanese titties go...???