"Pandora's Box Is Open": Why Japan May Have Started A 'Silent Bank Run'

Tyler Durden's picture

As extensively discussed yesterday in the aftermath of the BOJ's stunning decision to cut rates to negative for the first time in history (a decision which it appears was taken due to Davos peer pressure, a desire to prop up stock markets and to punish Yen longs, and an inability to further boost QE), there will be consequences - some good, mostly bad.

As Goldman's Naohiko Baba previously explained, NIRP in Japan will not actually boost the economy: "we do have concerns about the policy transmission channel. Policy Board Member Koji Ishida, who voted against the new measures, said that “a further decline in JGB yields would not have significantly positive effects on economy activity.” We concur with this sentiment, particularly for capex. The key determinants of capex in Japan are the expected growth rate and uncertainty about the future as seen by corporate management according to our analysis, while the impact of real long-term rates has weakened markedly in recent years."

What the BOJ's NIRP will do, is result in a one-time spike in risk assets, something global stock and bond markets have already experienced, and a brief decline in the Yen, one which traders can't wait to fade as Citi FX's Brent Donnelly explained yesterday.

NIRP will also have at most two other "positive" consequences, which according to Deutsche Bank include 1) reinforcing financial institutions’ decisions to grant new loans and invest in securities (if only in theory bnecause as explained further below in practice this may very well backfire); and 2) widening interest rate differentials to weaken JPY exchange rates, which in turn support companies’ JPY-based sales and profit, for whom a half of consolidated sales are from overseas.

That covers the positive. The NIRP negatives are far more troubling. The first one we already noted yesterday, when Goldman speculated that launching NIRP could mean that further QE is all tapped out:

... we believe the BOJ thinks that JGB purchases will have reached their technical limit in quantitative terms eventually, and it is highly likely it was a last-ditch measure to somehow maintain the current pace of purchases for some time. If not, we would have expected the BOJ not to introduce a negative interest rate this time either and to have opted instead to further increase JGB purchases.

Today, Deutsche Bank's Japan analyst Mikihiro Matsuoka jumps on the bandwagon and adds that "we are worried about a possible opening of a Pandora’s Box by explicitly removing the lower bound of nominal interest rates."

Here, according to Deutsche, are the most severe consequences of Japan opening the NIRP Pandora's box :

  1. as the monetary base target of expanding by JPY80trn a year continues, the tax on financial institutions expands rapidly also, even if an upper bound on excess reserves that are subject to the negative rate is set. The net interest margin of Japanese commercial banks is lower than in other countries.
  2. it is unlikely to deliver a combination of the reduction in excess reserves and a rise in lending on private financial institutions’ balance sheets: financial institutions cannot avoid this tax. If they intend to shift reserves to loans and holding securities in order to avoid the tax from the negative interest rate, excess reserves (a part of the monetary base) should fall, which the BoJ would not accept. As long as the target for monetary base expansion is maintained, the mostly likely outcome would be increases in both excess reserves and bank loans (or the holding of securities). On the other hand, in order for the monetary base to continue to expand, there have to exist sellers of government securities to the BoJ. A downward shift of the yield curve could cause financial institutions to refrain from selling government securities with higher associated capital gains to the BoJ.
  3. the negative interest rate is, in effect, a tax on financial assets, and not the BoJ’s intention. This could lead to an opposite outcome to that of the initial intention, whereby the country encourages companies and households to engage in capital outflow.

It is that last bullet point which is most important because it leads us to the most disturbing topic of all for Japan - the risk that NIRP backfires and leads to another "China", where the local citizens rush to park their assets offshore, resulting in a slow at first then rapidly accelerating capital outflow. This is how DB explains it:

if the negative interest rate continues for longer or goes deeper, commercial banks may have to set negative interest rates on deposits, which would expand not only the tax on commercial banks, but also on depositors (households and companies). This could lead to a ‘silent bank run’ via a shift of deposits to cash (banknotes), which in turn damages the sound banking system by enlarging the leakage of funds from the credit creation mechanism in the banking system.

That, and the capital outflow noted above. The good news is that Japan has a lot of physical banknotes to allow the NIRP bank run to continue for quite a while before collapsing the financial system.

In short, to grasp the worst possible consequence of Japan's panicked response to a rising Yen and plunging Nikkei look no further than China's unprecedented capital control attempts to stem the monetary outflow. Could it be that in its eagerness to devalue the Yen, the BOJ - like the PBOC - will be fighting tooth and nail in a few months to prop it up?

And if that wasn't cheerful enough, here is DB's conclusion which confirms that just a month after the Fed made a policy mistake, it is Japan's turn to follow in Yellen's shoes:

We wonder whether removing the last breakwater of the lower bound at a zero interest rate could end up being an expensive choice in the long run. The factor which pushed the BoJ down this path is probably its view that causality runs from economic activity to wages and then to prices, which we do not agree with. Our view is that causality runs from economic activity to prices and then to wages, and we do not share the argument that inflation does not rise because wages have not risen.


We believe the additional room that the BoJ has to lower rates on bank reserves is smaller than in other countries that have already introduced a negative interest rate, because of the lower net interest margin of commercial banks in Japan. However, if the BoJ pursues this path, we could reach the point of the trade-off of possibly damaging the soundness of the banking system.

By then, however, a Davos peer-pressured Kuroda will be long gone, and the doomed attempt to keep the system together will be someone else's problem. For now, all that matters is that stocks bounced... if only for a ahort time.

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Mr. Guts's picture

The run started with the same people that just stole the towels and bathrobes from Davos. 

unrulian's picture

I met a girl once...her name should have been Pandora

philipat's picture

Which is precisely why they want to ban cash...

Father Thyme's picture
Father Thyme (not verified) philipat Jan 30, 2016 11:42 AM

run silent, run deep

torpedo the banksters

WTFRLY's picture

Now it is a free for all


847328_3527's picture

Another good reason for every Japanese to be holding gold instead of paper. Their system is going to crash big time looks like.

remain calm's picture

GOLD stored in my shoe box has no yield and no cost, Cash stored in a Japanese bank has a negative yield and a cost. How hard can this this choice be to make for even Warren Buffett? Gigs up Warren, your fleecing is coming to an end.

nope-1004's picture

This is QE, plain and simple.  But it's stealth QE because the average person hears the headline "Negative rates coming to spur growth" and so they accept it.

The banks are sooooo insolvent.  The joke about this whole thing is that money is being priced as worthless and no one questions why.  The citizens of this world are completely stupid.   The attack on PM's in the face of negative rates is obvious.

The entire comedy act will blow up at some point.  Pricing money at less than worthless and calling it "good for growth" in the media must have every economics prof in every university scratching their nuts.  It is a bold faced lie.

So the trend is in.  You can now see it.  Negative rates are the reality and in light of that, PM's MUST be manipulated much lower.  The gig is up and the banks are insolvent.  The only thing left is when someone / something / somewhere attacks the price rigging of PM's, which will unleash the truth about negative rates and how pricing money that people use at less than worthless is complete desperation.


Save_America1st's picture

if the negative interest rate continues for longer or goes deeper, commercial banks may have to set negative interest rates on deposits, which would expand not only the tax on commercial banks, but also on depositors (households and companies). This could lead to a ‘silent bank run’ via a shift of deposits to cash (banknotes), which in turn damages the sound banking system by enlarging the leakage of funds from the credit creation mechanism in the banking system."


Ah...So you mean it fixes things...got it, thanks! ;-)


take that worthless fiat and trade it in for real phyzz silver.  SDBullion has a sale on micro-engraved silver Buffalos right now...any quantity for .59 over spot!


Stainless Steel Rat's picture
Stainless Steel Rat (not verified) Save_America1st Jan 30, 2016 12:49 PM



Japanese save-thrifts?

squandering their kids money,

on negative rates.

Arnold's picture

'I want you to remember this moment'



Ham-bone's picture

Perspecitve on why this system is falling apart...a system premised on infinite growth in a finite world.  What could go wrong?!?

Wonder what the Fed would say in response to the open facts raised in the link???



Tarzan's picture

That's because Economists practice theory and theory is not limited to the finite world.

In the finite world you can not cut a string in half for eternity, yet in theory you can. 

Fiat can, in theory, inflate forever.

Soul Glow's picture

They wanted to ban cash before NIRP.  That would have been that goal.  Not sure how well it will work now knowing we lose money and can't put it anywahere else.  

The Saint's picture
The Saint (not verified) Soul Glow Jan 30, 2016 12:56 PM

Putting excess cash into gold and silver will be the solution to NIRP.  Being a gold/silver bullion coin dealer should be quite profitable durig such times.

stopthejunk1's picture

...unless anti-hoarding laws and confiscations come along again, like they did in 1933.

Note that they wouldn't actually have to carry out confiscation. (They didnt in 1933, either.)  The mere threat of it eliminated hoarding.

No man is an island -- no matter how much PM you have.  You can sit on your bags of gold but if it goes down, we all go down together. 

How are you going to spend your bullion when its illegal to own?  You don't think anyone's going to rat you out when you pull out a Double Eagle at the grocery? 

Manthong's picture

...that's the reason for having lots of ASE's..

they will be like a lousy hundred dollar bill.

and the junk quarter will always be worth a gallon of gas.

..and don't be a fascist.. or else you will get ..........

Pb and Cu .. .. a couple of chemicals.... good store of energy

so I retract the nasty ness...

you are probsably a good guy, but many are not.

DownWithYogaPants's picture

Oooh Stainless Steal Rate:  You make a haiku!

Manthong's picture

A petal falls down

But unlike the hillary

not so much a clown



best haiku i do

without much thinking it through

F me and F you.



I'm through... :-D


kiwigal's picture

What you say is very true and on the face of it gold would be the answer but naive people think that governments play fair...they don't. In my country a few years back they passed a law that would allow banks to seize a percentage of depositers money if the banks fail and continue trading. The have had that law in  place for years,ready for the collapse of the monetary system, way down here in  little New Zealand. Interestingly where this trade agreement is to be signed.

spdrdr's picture

I must admit my surprise - I was certain that no Kiwi was aware of the bail-in provisions being surreptitiously slotted into place following Cyprus.

kiwigal's picture

The Reserve Bank Act. Being a small country with really one main paper with a bevy of journalists that follow the current right wing government's agenda discussion is very limited. Any journalists whether they be in television or newspapers have been weeded out. The most obvious being John Campbell who raised awareness on poverty within New Zealand. The leader of New Zealand worked for Merrill Lynch,the leader of Australia has been a director and partner of Goldman Sachs.  Says it all really.

1033eruth's picture

You can't suggest gold confiscation might happen on this board or the goldbugs will become rabid and downvote you rapaciously.  

Bananamerican's picture

don't be a dipshit 1033...

when FDR acted, we were on the gold standard...

they might as well confiscate our washing machines now

T.Gracchus's picture

You simply have no idea what you are talking about.

Hardly anyone in US, UK or Europe even owns phyzz gold- it would cost 10x more to collect than it was worth- plus the inevitable small-scale stand-offs, possible blood-letting in trying to collect from those who do own it.

Government needs you to pay taxes's picture

It would justify putting all those MRAPs and automatic weapons to use. . . Might result in fewer pensions to pay out, too!  Win/win, bitchez!

MilwaukeeMark's picture


You can't suggest gold confiscation might happen on this board or the goldbugs will become rabid and downvote you rapaciously.  

 You can suggest anything you want here on ZH and someone will give you a good pushback or affirmation upvotes to jar your thinking.

Never pass up an opportunity to learn.  Most people's heads are so filled with opinions there precious little room left for fact.


JRobby's picture

Which version of "We have lost control of this thing and we are not at all sure what will happen next" do you want to hear????

This fucked shit show is terminating and there are a thousand plus "versions" of that denial in double speak on a daily basis.

Manthong's picture

I always enjoyed Pannie when she opened her box there.

She worked down in the district in Misawa.

DownWithYogaPants's picture

Did you enjoy cracking her open?

Manthong's picture

well, the good thing was after she did rest of the squadron,,.

it got pretty slippery down there....

..and you don't even want to hear about Olongapo.

noless's picture

how would they even ban cash? would they nationalise the collectors market?

i mean seriously, are they going to confiscate wallets too? coin purses?

Arnold's picture

Nationalized Bitcoin will be yer litl' fren.

RockySpears's picture

1) tell everyone they need a debit cards in the next year

2) all shops/outlets get card readers

3) banks no longer deal in cash

4) do not print or mint any more.  Coins may last, but notes will not.

You do not need a ban really, just make using it really difficult.

MSM will describe cash users as drug lords and blackmarketeers, then neighbour will rat on neighbour.


Just because it is so prevalent now, does not mean it will always be so.

stopthejunk1's picture

PMs won't need to be "manipulated" lower.  In a deflationary environment, the price of everything including PMs will naturally fall.  In fact, no matter what you buy in a deflationary environment, you lose money.

In a NIRP environment, it makes sense to borrow as much money as you can, and then spend (or invest) ALL of it (since you can't hold it anywhere for free.) 

But people are too scared to do that; they only want to do it when everyone else is doing it -- because investors and managers and consumers alike simply cannot escape the Herd Instinct.

People only want to buy in a bubble, and they only want to hoard in a depression.  Animal Spirits, forever.  Fiat Man is a schizo that is either high on greed or scared shitless on fear, 100% of the time.



Not My Real Name's picture

Sorry, had to junk you for this blatant error:

"In a deflationary environment, the price of everything including PMs will naturally fall.  In fact, no matter what you buy in a deflationary environment, you lose money."

You are confusing a lot of things here including: money vs. currency, and purchasing power vs. price. 

Also, gold performs well in deflationary environments with respect to purchasing power precisely because it is real money. 

xtop23's picture


The meme that PMs only do well in an inflationary environment isn't accurate. It is precisely because I'm a deflationist that I think they will do well.

T.Gracchus's picture

Not my Real Name

I am sure you are 100% correct- same way so many of us are 'correct- based on economics as properly understood'.

Big problem nowadays is that nothing makes sense anymore. Manipulation means that shortages =declines, while surpluses =increased values.

In a fantasy world, fantasy rules- but making sense of that world is beyond me.  

Stainless Steel Rat's picture
Stainless Steel Rat (not verified) T.Gracchus Jan 30, 2016 7:59 PM

You are so right!  It is like a chess game.  Sometimes you are playing someone who only thinks short term.  They are at a disadvantage, but if you take your eye off of the short term game they will beat you.  In the right context, every losing trade is a winning sacrifice.  It just depends on how broad your perspective is. :-)

i_call_you_my_base's picture

"In a NIRP environment, it makes sense to borrow as much money as you can, and then spend (or invest) ALL of it (since you can't hold it anywhere for free.) "

Perhaps in a vaccuum or following a cycle of deleveraging, but when NIRP is in response to a credit bubble cycle, credit takers are saturated, and thus NIRP has little or no impact.

Arnold's picture

You are calling a loosers game,Junk.

No debt and savings is the smart play.


Just as it was in the mid thirties,

Yup, much of it will vaporise, but you still have your manufacturing skills to fall back on to fix the Joad's wagon and send it down the road.

Stares straight ahead's picture

If one needed venture capital from friends and family, it is during NIRP that one would best make the proposal.

Arnold's picture

Your time saves you.

Don't take it all and return it when able.

nope-1004's picture

You are completely wrong.  People that are misinformed don't usually post.  Posts such as yours are usually from people trying to sway public opinion by posting misinformation, as you have done.

What is the incentive for a bank to lend at nothing?

Low interest rates do not spur lending for one very simple reason:  The lender doesn't want to lend at a low rate.  They'd rather speculate with their money in some other sector instrument than lend to an individual for the sole purpose of consumerism.  Historically, banks have been in the business of selling money, which is lending at a rate above the fed funds rate so that they can profit.  Except today the price of money is priced at worthless.  Compare it to another commodity:  Should Apple sell phones below cost, or at worthlessness?  Then why are banks selling money at worthlessness?  Think for a moment.

Rates have EVERYTHING to do with the lender and care NOTHING of the borrower.  Low rates are an explicit admission that the banks are insolvent.  Otherwise, the banks would want to raise rates to increase inflation, increase bottom line growth through lending, and have better returns on credit lines extended to customers.  However, the opposite is what is happening:  Negative rates are here because banks are insolvent, can't service their own investments gone bad, and refuse to face the reality of bankruptcy.

Show me one bank that cares about it's customers?  Show me one fed policy or practice that took into consideration the public?  NIRP is here because banks are internally broke(n).

Stop lying like a banker.



Mintcoin's picture

Actually, Banks don't care about interest rates that much.  In fractional reserve banking, it has all to do about the reserve requirement ratio. The interest rate is just not that significant. For example: if the reserve is 10% the the banks will make 900% return over the life of the loan even at zero interest. The interest rate is just a bonus. Even if interest rates were negative 10%, they would still make like 800% over the term of the loan. Banks don't lend money they have they create 95%+ of the money out of thin air on every loan they make. The reserve requirement is even less than 10% so don't worry, the banks are making more like 2000% off of every loan they make over the term of it. The interest rate is just for marketing, propaganda, and to steal even more money from people. 

evokanivo's picture


Naturally, the confused rambling argument got +20 and you got just +1 (now +2) ... oh well, zerohedge is also a reflection of the masses.

EHM's picture

Would a bank see huge withdrawls at negative 10%? What about negative 50%? No reserves no reserve ratio. Interest rates don't matter til they do.

TeaClipper's picture

Not everyone wants to borrow, we are not all addicted to debt you know.

ebworthen's picture

And yet another article which uses the line that the FED raising rates was a "policy mistake".

The article bemoans the dangerous consequences of NIRP, yet says a rate raise of 0.25% a mistake!

We are so far down the rabbit hole!  PM's in your physical posession Alice!