This page has been archived and commenting is disabled.
BoJ Is Losing Control As Demand Wanes For JGBs
Well that didn’t take long. Just yesterday we noted that Japanese policy makers were starting to get wise to the fact that rampant monetization of government bonds can (and will) foster extreme volatility by robbing the market of liquidity and inhibiting price discovery. We went on to warn that with the BOJ greedily sucking up all gross JGB issuance (and in the process driving historical volatility to near two-year highs last month), all it will take are a couple of more weak auctions (like the 10- and 5-year debt sales from February) for things to go awry and that’s just what happened overnight.
Yields on JGB 10s rose 4 bps and the 30-year yield tacked on 6 bps after demand was tepid at the monthly 10-year sale. While down from last month’s 12-year high, the tail, at 0.33, was still some three standard deviations outside of the historical norm (not good). Allow us to reiterate (although this should, by now, be self-evident to anyone with a pulse) that Japan simply cannot afford for yields to spike as the entire ponzi scheme rests solely on there being a constant bid (from somewhere) for JGBs. The next test is Thursday’s 30-year auction which, according to Bloomberg, traders are already worried about.
We’re starting to notice a pattern here:
Meanwhile, another government adviser (this makes the second in two days) expressed skepticism about Japan’s ability to manipulate markets in perpetuity. Further easing “shouldn’t be undertaken,” Etsuro Honda, an adviser to PM Abe told WSJ, adding that the dollar likely can’t go much higher against the yen as we’ve probably reached the “upper limit in the exchange rate’s comfort zone.”
We’re reminded of what we said last month: “The idea that a nation can devalue itself into prosperity on the backs of the rest of the world was total idiocy after all.”
»
- 12136 reads
- Printer-friendly version
- Send to friend
- advertisements -
But.. but.. but.. their stock market is going crazy!
RED ALERT! RED ALERT! RED ALERT!!
DAX BROKEN BELOW 11,300 !!
http://www.marketwatch.com/investing/Index/DAX/charts?CountryCode=DX
RED ALERT!
https://www.youtube.com/watch?v=rIos0ya-yss
PUT YOUR HELMETS AND BODY ARMOR ON NOW AND PROTECT YOUR PRECIOUS BODILY FLUIDS!
https://www.youtube.com/watch?v=N1KvgtEnABY
And where's my fucking Iodine pills damn it??
No, the market isn't going crazy, the market is insane...there is a difference....
Insane: doing the same thing over and over expecting different results (80's-90's).
Crazy: institutionalizing insanity with cheaper credit via the central bank (2000-2010+).
.
How by defintion can you lose control when you are the market?
Please, they can directly monetize all the JGBs they want.
Slang would be:
Gaijin, please!
Only true for NEW JGBs.
For existing JGBs the money printing is not enough. And if you argue, that they could just print more money to buy these, too, there is one problem:
If a CB loses control and the old bonds are sold off, then this is always connected with an escape from the currency, too (bond = national debt = national currency). This means that the Yen would become softer while rates start to rise. If the central bank would print more, it would weaken the currency even further. What has worked prior, because the currency was seen as safe haven, suddenly would no longer work. Money printing no longer works, it even becomes counterproductive.
I don't know if this phase for Japan has started already, but I am convinced that one day the endgame will begin exactly like it is discussed in the article above: government debt begins to sink and rates begin to rise. Then the CB buys more and rates still rise - because now the escape from the old debt begins. The psychological crisis sets in. Game over.
ps: Hyperinflation is a psychological, not a monetary phenomenon.
"the old bonds are sold off" -- okay, but to whom?
The CB bank printing and selling to itself is a zero-sum game. None of that new paper will make it to the street, hence, the "psychology" remains intact.
It think you miss the point. There simply is no monetary, economic, fiscal, or political "solution" to resource scarcity. Especially for a small island country like Japan.
Nonsense ! What's the point of selling debt if you cannot use the resulting money at least to cover your ongoing deficits ?
Yes it is true that it will not work for a government or a nation and only a little for a nation state of the NWO but it will put the Q99X2 through college bitchez.
the blueprint of the current insanity we are practicing here in the states.
yesterday i lost count how many times CNBC said the 4 most dangerous words in this business:
1. This
2. Time
3. Its
4. Different
they were referencing Nasdaq re-hitting 5,000. same shit plan ... same disasterous result whether its printing $$$ to pump-up stocks or buying your own debt with $$$ that doesn't exist to finance deficits that will never be re-paid.
its never different & those who do not learn from history are doomed to repeat it.
It's always different, which the market clowns misunderstand to mean better. Really it's more like being dipped in acid is different than being dipped in boiling oil.
Nobody in Japan is complaining. Monetize all of it.
Obedient slaves.
Its always the quiet ones you need to look out for.
The Japanese obey always but when something goes very wrong they can be quite angry...
japan's BOJ, much like every other central bankster, wants yields to go up to the sweet spot where banks can rape the country. that sweet spot is certainly higher than the current level.
Someone help me out? Why do their bonds matter anymore? Doesn't Japan CB buy most of the float anyway and what they dont I am sure the US and EU does. So it is just a cluster fuch anyway.
The magic number 123 is still far.
So go and club gold paper price!
There is an easy solution. The Bank of Japan should participate in the auctions.
Here's some funny shit ! ..... Japan is ranked #3 economically happiest country on the planet !! ...hilarious.
http://www.bloomberg.com/news/articles/2015-03-03/the-15-happiest-economies-in-the-world
WHAT?!?
"Tepid" demand for 10-year JGB notes that pay a coupon of 0.33%?!?
Don't people realize that these are "risk free" Government Bonds?
"They just haven't monetized enough bonds yet. When they do, their economy will take off." Paul Krugman, 2015.
i knew it...
i knew it...
Everyone says dont fight the Fed....but in the BOJ case..it gets a little scary..
Let's see which turns to crap first. Japan or the EU.
Japan is where the robots our masters plan on replacing us with are being designed today. They'll be kept on life support a bit longer.
Right now the banksters can afford to lose Germany far more easily than they can afford to lose Japan. The Fourth Reich will go out first, and with a far more satisfying bang.
I'm still baffled that their currency is still standing. I mean they have been at the monetization game fo so long. I never thought the system could still function, yet there it is for us all to behold. And why not? Becasue TPTB need then still standing. Consequently, there's no reason the US can't keep at it, a few more decades of happy printing before the gig is up.
Ok calling all Chicken Littles ... time to downvote.
Japan has over 1 quadrillion yen in debt, roughly 11 trillion USD. 2 x GDP. The BOJ holds 20% of the issuance. If the other 80% want out, BOJ has a big problem and interest rates will most certainly climb. If they go up just 1-2%, Japan will be devastated.
It's almost all held domestically though.. http://www.wsj.com/articles/boj-becomes-biggest-japan-government-bondhol...
Maybe I'm naive but it seems like these guys are all standing on the same land mine. They might be sweating and trembling but they can't move.
EDIT - foreigners hold ~10% of japanese debt. Surely the BoJ could nom-nom that up. http://www.wsj.com/articles/SB10000872396390443890304578007780000186870
^^^this. For every seller there must be a buyer. The question everyone needs to ask is how long will the faith in a currency remain intact when the seller and buyer are the same entity.
So long as none of those paper claims start chasing real gods and services, I say this could go one for hundreds of years....
Good point, rummy.
Prisoner's dilemma, anyone?
Why should it matter if the bond is held domestically if the value of those bonds starts tanking? Wouldn't a domestic bond holder also have the ability to sell the bond? The BOJ is going to have a difficult time keeping interest rates stable if psychology changes, and it looks like that is happening. Once things get out of hand, it can get ugly very fast.
Hence the land mine reference. If you see one person start to look like they're giong to make a leap then BANG everyone is probably going to try and get away at the same instant. But the longer you can delay that instant the longer you can maintain status quo. These guys are all domestics, they know they're looking at the monetary end game. There will be no winners if they start liquidating.
There will be winners and there will be losers. While, yes, 90% of JGB's may be held domestically, if say only 1% of the population held them as creditor and the value of JGB's dropped 50% that 1% of the population would suffer a direct 50% hit. Of course, it is much more complicated than that. To the extent domestic banks own the bonds the banks run in to trouble and there is a cascading affect from there. But, the argument that government debt does not mattter if held domestically, to me, does not hold up.
Oh I totally agree that it's false to claim to "it doesn't matter" if debt is domestic for a domestic economy is still a multi-party market subject to self interest. I guess I should have phrased it as there will be people who suffer less than others but in the end, if your currency caves, your society and quality of life is going to deteriorate.
And right you are...
Those last days the JPY spiked about 120/1 (in December the record was about 122/1).
It seems that the debasing will not stop today...
Shouldn't we get Krugman's opinion on this? If memory serves me, it was him seen exiting Abe's quarters the morning before Japan unleashed their most recent QE. Abe's other "advisers" maybe just don't get it??? LOL
BOJ can print yen and buy out all the bonds
the real question is when bond holders decide to sell what are they gonna do with the yen they get ?
Aren't they holding bonds exactly because they do not know what to do with the yen ?
losing control ????? 10yr yields are at 40bp ! how long will you try and comment on the bond market with no knowledge. they can buy all the bonds back if they want....