Bank Of Japan May Buy Derivatives Next

Tyler Durden's picture

Because having legal authority to buy corporate bonds, ETFs and REITs, in addition to everything else the Fed now buys, is apparently not enough to crush, mangle and suicide its currency, the BOJ is now considering adding yet another "asset" to its cocktail of eligible securities for purchase: those which Buffett once declared weapons of mass financial destruction - derivatives.

From Bloomberg: "Bank of Japan governor nominee Haruhiko Kuroda said that the central bank will consider buying derivatives if he’s confirmed as governor and signaled a readiness for a quick expansion in monetary stimulus. “We will carefully consider such a proposal,” Kuroda, the Asian Development Bank chief, said in response to a lawmaker’s question in his second Diet confirmation hearing today." This development makes intuitive sense: central banks are desperate to destroy their currencies in the fastest and most spectacular fashion, and what better way than to have your central bank load up on the riskiest of "assets", which would be one brief downturn away from wiping away all the of the bank's capital and then some, and thus sending the currency into an even greater tailspin - just the outcome sought.

After all, in the new normal, it is he who "collateralizes" their currency with the most toxic biohazard, that wins. The Bank of Japan may have just taken a commanding lead over everyone else. The question now is: how soon until Bernanke follows suit and demands that the Fed be allowed to monetize equities, HY bonds, and other E-Trade baby specials.

There is a possibility that the new BOJ head is just bluffing:

“This is a communications strategy, rather than an actual policy at this moment,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. “Kuroda wants to impress the markets. Any type of asset, including derivatives such as interest rate swaps, should be on the table.”


Kuroda said in an interview last month that the BOJ could purchase the equivalent of trillions of dollars of assets to expand its balance sheet.

Although with Goldman's Carney about to join the BOE and show the rest of the world how currency destruction is really done, it is much more likely that Kuroda meant every word.

Central bank purchases of derivatives are rare, according to Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo who has done research for the Bank of Japan.


“This would be a first as a systemic policy,” Schulz said. “Central banks need to be very transparent in regard to the risks involved in buying structured products, and that limits the possibilities for what they can buy.”

Ah yes, central bank transparency: all we want to know is if the BOJ will also use Citadel as an arms-length agent through which to transact its swap purchases. Like the NY Fed that is.

Whether buying derivatives could be adopted by the BOJ is “not just an issue of persuading other BOJ board members, but also the technicalities in the market,” said JPMorgan’s Adachi. “If the market is very small and the intervention by the BOJ is significant enough to collapse the market, then perhaps even Kuroda will think it’s not a good idea.”

The good news, at least for one former JPM employee, Bruno Iksil, is that his IG and HY CDX manipulation skills may soon be in great demand. Only this time he will truly have an unlimited balance sheet to whiplash the market around as he desires.

As for the consequences, we just hope to be far away when the house of derivative cards finally comes toppling down.

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Say What Again's picture

Good.  That takes them one step closer to an epic crash.

Popcorn please!

I wonder what Japanes Manga would look like if they were merged with R. Crumb (ZAP Comix)

kaiserhoff's picture

Or, they could just sell puts on the Nikki Index.  Crazy as ape shit?

Yes, and the Kingdom of Denmark, actually did it, on the Nikki shortly before the market crashed in 89.  Remember portfolio insurance?  What a cluster fuck, and they are looking for this stuff.  A strong currency is their best tool.  Maybe that radiation is further along than we thought.

Global Hunter's picture

makes sense to me,  they need to bail out somebody who is short these derivatives.

Clint Liquor's picture

The Crony-Capitalist circle is complete.

eatthebanksters's picture

It's like giving Iran nukes...let's destroy the world,or at least hold it hostage!

whotookmyalias's picture

If you've ever watched a Japanese game show on TV, you would know they are a bit nutso.

TruthInSunshine's picture

The Bank of Japan is buying my used underwear via 'Subscribe & Save' for 20,000,000 yen per month.

I think it's a win-win.

GetZeeGold's picture



GE nominates Mary Schapiro to its board


Wow.....on purpose? Didn't anyone think to call Jon Corzine first?

Spigot's picture

Ummmm...yeah, sense...and an exercise in the processes and mechanics of monetization, sterilization, etc.

So, riddle me this: in order to sterilize the entire Dx market one would need to eat it whole, in an instant, and simply BE the singularity, owing and being owed to one's self alone...yet in the process of consuming the Dx universe what amount of "cash" does one will into existance which then runs amock in the real world? $1 QUADRILLION? $100 TRILLION, $10 TRILLION???.

And the very act of eating the entirety of Dx in more than 1 nanosecond, means that part of Dx is still vulnerable to the flash of monetized hyperinflation which induces bond prices in the secondary market to collapse to about 2% of their current value, which ignites the destruction of all un-swallowed parts of the Dx universe.

An interesting exercise, if failure did not mean the immolation of the planetary financial network.

NoDebt's picture

Your point being....?  ;)

Welcome to the party, friend.

Spigot's picture

pink mist may be in our future

Spigot's picture

Rethinking this a bit in the AM. What is there to "buy"? Essentially these contracts are risk off putting for a price. So, does this mean the BoJ becomes the counterparty of last resort, guarranty to all losses??? I think that is the only thing that makes sense in the context. Essentially BoJ will print whatever money is needed in order to cover the losses of any party whose counterparty fails to fulfill.

Pink mist indeed!

camaro68ss's picture

They should have thought of this sooner! DOW 20,000 here we come!

This will get MDB licking his chops

Lost Wages's picture

Usually when they say they're "going to do it" that means they're already doing it.

McMolotov's picture

And if they say they "have no intention" of doing something, it means they're getting ready to do it.

"We have no intention of using drones on Americans," etc.

spastic_colon's picture

.....and only fags need "legal authority" just ask the USSA where the order of events goes like this;


central bank trades derivatives,

somehow a fed audit gets passed,

central banks ask for "legal authority" to trade derivatives,

"legal authority" is granted,

audit is performed,

central bank passes audit.


(no offense to actual fags)

neidermeyer's picture

EXACTLY , just interpret it the same way as analyst buy/sell/hold ratings.

Vuke's picture

Goodness me, derivatives?   They'd do better with gold stocks.  At least they're backed by some holes in the ground.

Acet's picture

As Grillo said, why go to all the trouble of digging the gold out of the ground just to put it in the ground again under a bank. Might as well just build the bank on top of where the gold is and skip the rest of the process.

Bill D. Cat's picture

Schultz .

Figures .

magpie's picture

Schultz ? You mean the guy from Hogan's Heroes, or the one from that Operation Bernhard series ?

MoneyThangs's picture

Leave it to the BOJ to buy the biggest pile of pigshit in the world.. Call BAC their ooverflowing with the stuff!

NoDebt's picture

Japan is more desperate than we are (currently).  Therefore, their intervetions will be more insane.  When we reach that level of desperation we will do similar things. 

Japan is the canary in the coal mine.  They're hurt, they're LONG since broke, they've got the biggest debt/GDP ratio, and they're big enough the whole world can't possibly bail them out of their mess.

Pay attention.  They may be where the real hell-on-earth financial crash begins.

jerry_theking_lawler's picture

here. here.


ding, ding, ding....we have a winner.


China may push them over somehow (when the timing is right)...

swissaustrian's picture

My derivates menu for the BoJ: 

- engage in long term interest rate swaps to suppress interest rates on JGBs

- sell calls on JPY.

- 3x long nikkei vs 3x short shcomp spread

- package and securitize life insurance policies for any Japanese citizen >80 years.

- sell long term potassium iodine calls




kaiserhoff's picture

Well done.  Love the potassium iodide.

How about adding a line of Hurricane, and Sink Hole insurance for Florida?

Maybe a crocodile farm and a chimpanzee act.

EvlTheCat's picture

Hey, if you combine the crocodile farm, and chimpanzee act, replace the chimpanzees with politicians on a tightrope, wearing pink tutus, on unicycles, riding over the croc pit; I will back that investment 100%.

swissaustrian's picture

Right, I forgot about cat bonds...

andrewp111's picture

My cats signed their NINJA loans with pawprints (in purple ink) for their empire of rental property. Are you saying they qualify to issue bonds as well?

RockyRacoon's picture

Lugol's Solution.   2 drops a day and you're covered for lots of stuff.

ekm's picture

Do you guys want more proof that the Fed has been doing QE1,2,3n with the only goal to provide money to primary dealers and major euro banks recently in order to do CDS payouts?


I have question for those in the know. Can the Fed legally buy derivatives?

american eyedol's picture

they can do it in around about way thru the banks if the wish

ekm's picture

As I said, they are paying for the payouts, but can they legally buy derivatives outright?

Is there any loophole for them to do it? That would mean can Obama find a loophole to order Benny to do that?


The outcome of doing it is a different story.

AlaricBalth's picture

I think Bernanke takes his orders from someone(s) higher up the food chain than Obama.

ekm's picture

Military complex. Bank lobby is just a minion compared to military complex's power.

Bingfa's picture

I've heard from a pretty reliable source that the big bank Derivative exposure is 3-4 times what's reported. The whole thing is totally out of control. AS far as the FED buying them legally? They're going to do whatever they have to do.

Bingfa's picture

Every single number is so skewed...I mean totally out of control skewed.

And yet the band plays on....They're buying way more of our debt than what you think also.

                   The perfect storm is going to be Quasar......

NoDebt's picture

As I read their charter, there is nothing they can't buy.  Which is to say, it's silient on line-iteming what they can and can not buy or sell.  If it bears any passing selmblance to "maintaining stability in the banking system," it's fair game.

Enjoy.  (Or weep.  Whatever floats your boat.)

Even if it was specifically prohibited from doing so would you sleep any better tonight?



Bingfa's picture

 Like there could be an exit?

They own everything now, Literally everything...

                How do they proceed forward? serious question


ekm's picture

Thx for reading the charter for us.

Bingfa's picture

Or the Fed balance sheet......That's even a bigger hoot

You'd have to be a moron to believe any of these numbers......

StychoKiller's picture

Do some research on the "Exchange Stabilization Fund..."

ekm's picture

I have, a lot time ago. It's not that big.

There is no a concentrated plunge protection team the way I see it.

What we call ppt is basically trading desks of primary dealers who buy stocks that anybody else sells and trade to each other.