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A Historic First: Bank Of Japan Monetizes Debt At Negative Rates
First, Europe infamously shifted to a NIRP and now Japan has begun NIRP monetization. As WSJ reports, Tuesday marked another milestone in the topsy-turvy world of monetary easing in Japan: The Bank of Japan bought short-term Japanese government debt at a negative yield for the first time. In the understatement of the decade, one Japanese bank strategist noted, "The BOJ probably didn't expect this would happen, and T-bill rates staying negative should be a cause of concern for them." The BoJ's decision to scoop up these negative-yielding bills appears to confirm they will meet the QQE-buying demands no matter what the cost (to the Japanese people). The bottom line, the Bank of Japan is now implicitly issuing debt to the Japanese Treasury.
The BOJ scooped up some of the three-month No. 477 Treasury bill, which has traded at a negative yield for the past two trading days amid strong demand, the market participants said.
...
Traders said the bank wanted to show the market that it would meet its asset purchase goals–literally at whatever the cost.
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Market participants say the bank probably didn’t foresee buying Japanese debt at negative yields. But the European Central Bank’s easing has created demand for short-term Japanese debt from European investors, to the extent that interest rates have turned negative.
“The BOJ probably didn’t expect this would happen, and T-bill rates staying negative should be a cause of concern for them,” said Shogo Fujita, chief Japan bond strategist at Merrill Lynch Japan Securities Co.
* * *
So, in summary, normally, people who buy debt expect to get their money back plus some interest. Negative yield means the buyer gets back less than he or she puts in.
In other words, the Bank of Japan is now ISSUING debt TO the Japanese Treasury.
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Smoke and mirrors
jim cramer has been saying all week on his cnbc commercials for his show that the "united states is a great place to invest cause all of the worlds dollars are now coming here to invest" AKA HYPERINFLATION but of course he doesnt say that, what a friggin psycho path
Japan GDP contraction just revised to greater than 7%
http://www.japantimes.co.jp/news/2014/09/08/business/economy-business/gd...
Is this analogous to Japan being a hermaphrodite. That is Japan gets to fuck itself all it wants.
It's just a bunch of digits in a computer. No need to slave over it.
How did the bank of Japan not end up with a member of the Red Shield running its central bank?
I can't believe I am reading this.
It all Japanese to me......oh crap, Forward!
Please ... do not worry.
"Treasury" LOL! Where's the TREASURE?!
"Smoke and mirrors" Smokers, tokers, and jokers is more like it..
COSMOS - How did the bank of Japan not end up with a member of the Red Shield running its central bank?
Their Fed has their gollum, Uncle Sugar by the throat and Sugar in turn, has the Japanese by the balls. So yeah, they've got it covered.
Tentacle porn?
what's the big deal--this i sno dofferent than the high inflation rates of the 70's when you could not save enough or earn enough to buy a house since they were going up 2% a month.
I remember going to buy our first house and walking in the Levitt model in a sunday morning. I started asking questions of the salesperson about moving electrical outlets. He said they do not do it and to turn around and look at the lines forming. He reminded me of their policy of raising prices 2% per month. Looked at my wife and on a 60k home that was 1200 a month and we could not afford to wait.
Hence, we could no thoard our money and had to spend. FAst forward to today--with a twist--negative interest rates and moderate inflation, but now in Eurozone and Japan, and prob soon here you pay to keep money in banks, the ultimate insult. We know the banks are not fully liquid nor is FDIC and thus we wil be foreced to buy hard assets OMG--might that be PM or wil it be houses that are also depreciating? Well, how many kids can afford a house or even have cash. Once again the seniors get screwed.
I got the feeling that we are nearing the end which wil be started by some sort of mistake/miscalculation in the economy or finance area.
NIRP bitchez
Purple NIRPles, bitchez!
Squeal! Squeal like a pig!
How negative should rates go before it's a good short.....
Can't wait
And at what point is a Short a Wedgie?
They'll be singing like the Bee Gees, just to be Stayin' Alive, stayin' alive.
I wish I could borrow money at negative interest.
It's a no brainer
Listen. I wish I could "PRINT" my cash requirements direct from my HP laserject! AND NOT GET ARRESTED.
No shit, borrowing at neg interesting is awesome. I'm going to call the Fed Reserve tomorrow and ask to borrow a quadrillion dollars for 30 years at a neg rate. My payments will be on time I promise. I gonna be rich biatches!!
I'll gladly pay you less Tuesday for a cheeseburger today.
But but but Gold has no yield!
I need a vacation. A lonnnnnnnng vacation.
Zero sounds better than negative...
You ain't seen nothing yet. Things will get increasingly ridiculous until we just literally laugh ourselves to death.
If your you and your country was held ransom by psychopathic mad-bankers and that you were told that Fukushima was only a taste of what to expect if you do not comply ... most likely you would capitulate, thinking ... "for a time, we can abide."
... and so the Japanese abide the insults and humiliation because it is only temporary.
This will be the solutions to Japan's budget deficit, and eventually their debt. If they increase their debt by a large enough amount, they will eventually earn enough interest on it to pay it off.
Stop. Stop. You're making my head explode.
Please, no more. Blue Pill, STAT! I'm done. I want back into the Matrix.
You're almost correct. They issue debt at negative rates and buy the debt and pay interest to the debt issuer, their own government. Of course they print twice now. Once to buy the new debt and then again to pay the government to service the debt. Eventually the government of Japan will be wealthier as it "earns" revenue by issuing debt that BOJ must keep buying!
Genius! Why didn't I think of this sooner! I'm going to pay myself to take out more debt and will give the banks both middle fingers!
The government issues the new interest free debt, earns the money and pays back the older debt carrying interest. The same reason why share buybacks were soaring - interest on outstanding shares (dividends) are more expensive than issuing new debt and buying back shares.
And we should also not forget, that the more debt the central banks hold, the easier the solution of the debt problem becomes: make the debt in the CBs balance sheet vanish with a simple law.
And that would not necessarily mean exploding interest rates, if the privately held debt is excluded. In fact the market would even appreciate it, since he receives his interest payments, while only the CB-owned debt vanishes.
Prepare accordingly.
Full retard! It must be the Cesium.
More like Strontium 90.
At some point it'll cost more in ink & paper than the value of the stupid note...lol...but for now...
Banzai! Over the qwiff!!!
Kyle Bass where are you?
All please get in on this early! Send your money to my paypal account and in one year I will give you LESS money back! This is the new money making system (for me).
Where do we sign up?
For the toilet paper!...
Which means absolutely nothing as far as real economy
Central bank and treasury dept are two cubicals in the same office.
Just two computers that move money back and forth. It's nothing
What matters are the gambling swaps off the interest rates that recycling money for bonds between treasury and central bank set.
This is constant recycling to keep rates low so swaps don't implode.
Japan parliament may as well abolish either treasury or central bank or merge them both.
That being said, US could do the same thing. At zero % who needs a central bank. Just type in digits on computers, reserve based economy, not credit based economy
Hmmmmmmm???
Let's assume "negative yield" is 20%
That would mean 20% reserve extinguishing.
Hmmmmmm................Interesting
This is another way to extinguish excessive reserves
I find this fascinating
Interesting concept. How is this different then 20% interest rates?
When central bank sells bonds and receives reserves (cash), then reserves disappear. Central bank is like blackhole for reserves.
So, at positive 20%, 20% more reserves (dollar or yen or any currency) will be added to the principal
At negative 20%, the opposite. it will be deducted from the principal.
Central bank is a blackhole for reserves
My perspective is from the person hilding the cash.
At 20% interest rates holding cash means you get $80,000 of purchasing power a year later.
At 20% negative rate means you have $80,000 in currency a year later.
These could be the same thing.
edit: my mistake is conflating high interest rates with high inflation. While they are usually linked, our current economy is an example where they most definatly are not. Milk is now $4.89 a gallon yet my credit union just offered me the stunning rate of .25 percent a year!
So BOJ buys 100 yen bond by creating 80 yen out of nothing, negative 20% interest.
BOJ added 80 yen of reserves into the system
BOJ holds bond to maturity and gets 100 yen out of the system (into a blakchole)
Final: added 80 yen, extinguished 100 yen, 20 yen gone
You still seem to believe that reserves are being destroyed as the written rules would seem to dictate.
I would argue that without proof of the reserves being removed/destroyed that it is as or more likely that the reserves are going to a new life in unregulated black ops. rather than going to die the regulatory black hole.
This is the law.
Fed is a blackhole. It is the law
This has got nothing to do with belief or faith.
That is the law in every credit based country of the world. That is how every credit based system works
http://dewoody.net/money/ch3.html
number 54
For black ops there is no need to extinguish anything. They just make it up on a computer.
Whether they are destroyed or not is very easy to see:
Derivatives still standing? Then not destroyed
Derivatives collapse? Then destroyed
Easy peasy
Then why do they need all those poppy fields? Why not just print up the proceeds and skip the poppies??
people want to get paid
other people want to consume poppies
Actually BOJ buys a 100 yen bond for 102 yen created out of thin air. At maturity BOJ gets 100 yen back.
This will end well, please... do not worry.
that is positive rate
We're talking negative rates
Oh, I meant to focus on 'negative rates'. The word 'negative' was at the centre of the comment
As far as creating excess reserves I absolutely agree. It kills the real economy by design.
Correct.
That's why I say, zero interest rates of negative rates convert the economy from credit economy to reserve based economy, like communism.
Fed is buying crap assets or inexistent assets existing on paper only in order to supply reserves to primary dealers or major players like Warren Buffett who are insolvent due to derivative losses.
Having access to reserves in trillions, then insolvent bank lobby oligarchs are trying expropriate solvent oligarchs from oil, copper, gold etc assets. Hence intra lobby civil war, oligarchs civil war going on right now
Well done ekm.
Having access to infinite fiat, insolvent bank lobby oligarchs are trying to expropriate solvent oligarchs from oil, copper, gold etc. while they can still bamboozle the rubes or just kill them and take their stuff ie. Gaddafy.
If you don't fight back, your stuff's all gone and you're holding worthless coupons.
"worthless coupons" is a great way to put it.
And yes, there will be assassinations unless bank lobby surrenders in peace.
"Correct.
That's why I say, zero interest rates of negative rates convert the economy from credit economy to reserve based economy, like communism.
Fed is buying crap assets or inexistent assets existing on paper only in order to supply reserves to primary dealers or major players like Warren Buffett who are insolvent due to derivative losses.
Having access to reserves in trillions, then insolvent bank lobby oligarchs are trying expropriate solvent oligarchs from oil, copper, gold etc assets. Hence intra lobby civil war, oligarchs civil war going on right now"
I understand this more so than your first comment above. Thanks.
I still like to identify those "reserves" as counterfeit though and not insinuate that there is any money (productive work valued by natural demand) involved with respect to the initiation of the "monetization" process.
Those "reserves" represent someone elses productive work and not any productive work from the ones who benefit from them.
The oligarchs are stealing value from the exchange as counterfeit can only do and not introducing value to the exchange as money would necessarily do.
When commercial banks creates reserves monetizing output, is bonafide reserves.
When Fed does it by giving them to insolvent bank lobby oligarchs, it is counterfeit money
I think we are on the same page, ekm1, however, commercial banks would be monetizing what is input to them and then output by them in this manner: money, productive work from the economy is put in to the bank and then the bank can monetize this by putting (lending) it out. That is, the bonafide reserves must be represented by full value and not fractional value. Is that what you mean? I explain it in greater detail here as full value vs fractional value. http://ocsure.blogspot.com/2014/08/full-reserve-banking-trounces_89.html
Mommy, is it true that at one time, you got paid NO interest on savings or checking?
Yes son, at one time, you even got all of your money when you cashed a check too, not less a check cashing fee, or an ATM fee, or debit card fee.
I just knew Japan was up next from the debt pitcher bull pen.
Vaseline on the ball, Abe?
Abe is about to have a new case of diarrhea. Any moment now.
Welcome to the unintended consequences of central banking. If demand was so high for the debt, why didn't BoJ just pass on the purchase option?( overkill much? They must be pretty fucking scared of things getting out of control)
If I have a gun in my hand and tell someone I'm going to shoot them, I'm pretty sure they would take me at my word and STFU. (I don't have to pull the trigger to make my point)
Unless you are holding a water pistol.
This is true. :-)
What if it's a a Super Soaker?
YC, This is beyond fucked up. Fucked up implies a reversion to the mean. This implies more fuckery.
I'm sure Mr.Yellen is taking notes.
I think you are right. She will need to hose down the USD at some point.
fucking morons...
remember these r the same mother fuckers who in futile desperation required their pilots to fly their planes into ships...
the japanese r some arrogant mother fuckers who have a hard time accepting the reality of defeat...
its that pride thing...
just sayin...
LOL. Good luck, my friend, we are all going to need it from here on out.
Japan is a complete basket case, what else is there to say.
This is because they are in a very small basket with no natural resources, a major radiation problem, and a huge picnic table called CHINA close by that makes anything you can find in the basket but you get a lot more of it and at cheaper prices.
"The circle is now complete OMG. Once I was but a dipshit like you but now I am Full Retard!"
"Only a Full Retard of balderdash Barf Caper!"
Go out on a limb
So far that you end up in
A whole other tree.
"Garth, that was a haiku!"
AUD is shiting the bed.
Edit: bed-shitting continues...stops being triggered.
Edit 2: Australian media inteprets this as sign UK and US are about to raise rates. Sure they jest.
.
Who buys a negative yield? Seriously. All Suzie O. talks about is 8 percent a year like that's still the norm now - how about PAYING to save, hows that gonna work out?
ECB printing faster than BOJ, so negative rate JGB actually yields more in the form of real returns than Euro bonds? That's the only way I can see anyone would want this crap, but even then you could just trade the currency itself and spare yourself the hit from the neg rate...
Maybe it fulfils some bizarre collateral requirement I don't know about? I don't know... It's getting harder and harder to keep up with this nonsense.
Hari Kari is almost as good as jumping off of a building bankster M'Fers.
The Bank never “ goes broke. ” If the Bank runs out of money, the Banker may issue as much more as may be needed by writing on any ordinary paper.
Bottom of page one:
http://www.hasbro.com/common/instruct/monins.pdf
Page motherfucking numero uno.
Hasbro's doctoral thesis is a marvel of clever engineering, isn't it?
It might soon become apparent the economic efficiency of credit is beginning to collapse and the additional money poured into the system coupled with lower rates can no longer drive the economy forward. When this happens we are at the end game.
At some point the return on loaning money is simply not worth the risk! Why do you want to loan money if most likely you will never be repaid or repaid with something that is totally worthless? When this happens the only safe place to store wealth will be in "tangible assets" and the only lenders will be those who print the money that nobody wants.
The collapse of credit can pose major problems such as what we saw when many sellers were forced to demand payment up front before shipping goods in 2008. More on this subject below.
http://brucewilds.blogspot.com/2014/06/the-economic-efficiency-of-credit...
Because Bankster make their chips on the origination of the loan. Then they pawn off the crap on the FED.
Cause debt is the new gold! Get it?
Japan implodes first,then the US a while later. The US gets to see it's own destruction through Japan.
I agree but some time in beteen we will see the Euro crash in flames. Most likely right after the Yen going down sends fear across all markets.
i have a thought game for you, if JAPAN goes where do you think people(especially the Japanese) will be rushing to put their money into....?
In a sane world it would go into Gold and silver, but who are we kidding? It will be plowed into US treasuries allowing us to experience the nirvana of negative rates as well. Yippie.
TING TING TING WE HAVE A WINNER!
Balance is important and like so many things in life when it comes to economic policy it is very important to balance the markets reward when it comes to savings and debt. Savings plays an important role in the economy and has been shortchanged, this will come back to haunt us. If you live in Japan it is time to get your money out of the country.
The idea of being frugal and living within our means has not been given due credit, living by increasing debt is far too acceptable. When we find it necessary to discuss savings we are back to basics and it is a sign we have strayed far off course in our economic policy. More on this subject in the article below.
http://brucewilds.blogspot.com/2014/09/savings-and-role-it-plays-in-econ...
NIRP in Japan, NIRP in Europe, and a little secret, if you're a saver in the US, NIRP here, too, between inflation and fees. Only a matter of time before the printed rate is NIRP as well in the US.
These here seeds for next year's crop baked a mighty fine loaf of bread!
We're in the short count to disaster. I doubt we make it to 2018 with the system intact.
"buy" debt?
"costs"?
its a central bank. these words do not apply.
and anyway: its owner's can afford it.
If you can borrow enough money at negative interest rates then you could theoretically eliminate the debt.
i was just pondering how this could function as a slow drip jubilee
If this weren't so f***ed up, it would be fun because intellectually this stuff is endlessly fascinating. Instead of holding fiat currency, I'm giving up fiat currency now to buy a contract to get back less fiat currency later. Under what circumstances could that make sense?
Take it to the extreme and say it continues and interest rates eventually go to negative 100%. I pay currency and get nothing in return. Certainly that debt isn't an asset I'm buying, it's just a completely worthless black hole. But maybe that is right since the debt can't be repaid in aggregate anyway other than with what will be worthless fiat currency, it can't be worth much, if anything. Even still, there are other things I could buy now with currency while it has perceived value.
In a world where Iggys and Karsdashians are considered talented, young muslims want to fly into buildings and kill people and central bankers think they can create value by causing capital misallocation, maybe it all makes sense.
It's long past time to understand how fucked things are. All you need to do is prepare your family for the shitstorm.
Lay off the Kardashians man.....my wife will hunt you down
How premiums for PHYS are not exploding massively higher is beyond my imagination. What the fuck are people waiting for? The day that they actually need to bring gold or silver to pump gas and buy groceries? Can't be that far off when you consider the price inflation on everything you actually need to live and your household to function.
There is no real market and there won't be again until the global financial system resets.
Adding fuel to the burning yen it seems, read a couple of articles pertaining to this, if you opperate in currencies.
The short / medium term - next few months 110.00/111.00 in about 4-5 months
http://www.forexlive.com/blog/2014/09/09/the-technical-case-for-re-estab...
The Long / Term - next few years - get this, 200 in about 3-5 years
http://kylebassblog.blogspot.ca/2013/01/kyle-bass-usdjpy-will-hit-200.html > from last year
http://www.forexlive.com/blog/2014/09/09/gundlach-i-think-usdjpy-is-goin... referenced again today
> Not sure I would leaver up like a retard, but it certainly makes a case for adding to your positions if you are long, and looking for a decent dip to buy on...but no one can read the future with 100% accuracy.
> some information I have added if you play currencies http://forextopsandbottoms.blogspot.ca/2014/09/usdjpy-to-110-and-eventua... via my blog
No matter what the interest rates are, isn't that a zero sum game? Central bank profit from positive rates is paid out to the treasury, it should work the other way round with central bank loss.
We've been paying to borrow money forever and look where that got us. Bribing people to boorow money from us will be much more popular. It's worth a shot, nothing else has worked.
At this point, any person still holding yen might literally be retarded. On the other hand, now is a great time to borrow in yen.
I'm not as smart as the rest of you guys when it comes to this stuff.
But. If their government issues debt at negative 100%/year, and the BoJ buys it all up, then after a year the bonds go to zero, and the government owes the BoJ nothing.
The BoJ created the yen that it used to buy the bonds out of thin air, so now it can erase those yen from their ledger, and it's like the transaction never happened, right?
The BoJ balance sheet goes back to whatever it was, and the government is no further in debt than it was a year ago, even though it spent a lot more than it took in.
Okay, I suppose the money supply grew. But the ratio of debt to GDP stayed the same, so who cares?
And if there's a little inflation, all the better -- that's what Abe wants anyway.
I'm surprised the brainy guys at the Fed haven't already used this trick to keep our Public Debt under control.
1. Take out gymourmous loan.
2. Stash money in mattress.
3. Live off the interest on your debt.
and yet another new high for the Nikkei >15850, while HK falls nearly 500 points!... USJPY going nuts fast approachong 107,trying to buoy the US futures.... meanwhile Europe bright red....and Gold and Silver while up overnight get whacked again....Brent at new lows @9876
This does have a feel that things are starting to unravel here, European Bonds again this morning are moving up and Dow barely holding above 17k hit 17002.7 overnight with S&P a low of 1986.3....looking very shaky acroos the board
Quite silly actually. Bank of Japan should buy up treasury debt and write some of it off. That reduces the total government debt, debt servicing burden and deficit.
its not as simple as buying it up and writing it off, since what they are buying are instruments in future obligations like pensions, and you cant just write off pensions and other future obligations without making the japanese poorer
Those who wish to hold on to the government debt to redeem in future can continue to do so. Those wishing to liquidate the bonds for cash (there are always some doing that, otherwise there won't be any trade in government bonds) can sell them to the Bank of Japan for cash. Bank of Japan tears up the bonds and tells the government that part of their debt is forgiven. Of course their balance sheet becomes unbalanced because the assets are now much less than the liabilities. But that is not a huge problem since then can declare anything to be an asset of any value they please so that they can enter it into their books.
Frankly the central bank periodically buying government debt and forgiving it is good for savers because the government can afford to pay the bondholders a decent rate of return. Negative interest rates on debt will kill savers if they buy it at all; not only will they get no income from holding the government debt, its value at maturity will be less than its current value. Only someone who doesn't care if the debt is repaid i.e. the central bank can afford to buy such debt. Why go through the circuitous route of debt bearing negative interest rates instead of the direct route of debt forgiveness?
and if by magic Dow moves up 50 points and the DAX 90, FTSEMIB 275
Pay me for the privilege of lending me money.
Wow, wish I could get a fixed rate mortgage like that.
Wow...just used a bazooka to blast the Eurobonds. What a fabulous carry trade.
If you have a trillion dollars of imaginary money would you trade it for a half trillion in half real money? Canada should cash in on this need,