A ¥9 Trillion Hole Emerges Inside The BOJ's Balance Sheet: "It’s A Pretty Dangerous Situation"

Tyler Durden's picture

When it comes to accounting conventions, the Fed and the BOJ differ in one major way: unlike the Federal Reserve, the BOJ counts its bond holdings at the purchase price, minus amortization costs. In the old days before NIRP this wasn't an issue because with positive yields, it meant that with time, the value of any central bank bond purchases would accrete through maturity and never lead to a booked loss; however under NIRP, it means that the BOJ is purchasing hundreds of billions in bonds at prices that are so high they guarantee a loss, meaning that by maturity the central banks will face a cumulative loss on the face value of recent bond purchases.

From a purely accounting standpoint, it means that a gap has opened on the BOJ's balance sheet, representing the difference between the book and face value of the central bank's monetizations.

How big is the gap? According to Bloomberg as of August, the delta between the balance sheet and face value has ballooned to some 8.7 trillion yen, or $84 billion.

That "gap" is the difference between the 326.7 trillion yen in BOJ bond purchases at face value, and where they are marked on the balance sheet in August, or 335.4 trillion yen. That gap is 42% bigger than before the introduction of negative rates in January, and rapidly rising. At the end of the 2015 fiscal year on March 31, the gap between the two valuations was 6.4 trillion yen and the BOJ wrote down 874 billion yen, according to documents seen by Bloomberg. That was covered by the 1.29 trillion yen in coupon income the bank received that year. However, since the coupon of all current and future purchases are negligible, the BOJ will see limited future current income, and thus will have to resort to other means to plug the balance sheet gap.

“These numbers show the distortions of the BOJ’s current policies,” said Sayuri Kawamura, a senior economist at the Japan Research Institute in Tokyo. “The annual amortization losses are going to increase and consume the BOJ’s profits, and the risk is increasing that the bank’s financial stability will be shaken.”

As Bloomberg adds, "while not an immediate problem because the BOJ’s income can cover the losses, the widening gap raises questions about the sustainability of the central bank’s bond purchases, which Governor Haruhiko Kuroda has said could be expanded."

The BOJ did not have much to say about this troubling decoupling which will eventually require the BOJ to plug the hole: Tadaaki Kumagai, a spokesman for the central bank, said “the BOJ releases half-yearly and yearly accounts,” while declining to comment further.

With the gap between the two valuations even larger now, it “would probably be a pretty safe bet” that the losses the BOJ will book for this fiscal year will increase from 2015, according to Naomi Fink, the chief executive officer of Europacifica Consulting. As Bloomberg puts it, "while when those losses may exceed its income is unknown, with the bank buying more high-price, low-income bonds, that time will probably come soon." Fink said that under some scenarios, this could even happen this fiscal year.

How much losses can the BOJ absorb? The central bank currently has 2.69 trillion yen in a reserve to draw on to pay for bond losses.

“In preparation for an eventual exit from stimulus, the BOJ last year started adding to its reserves to guard against bond losses, but if profits decline, there’s a chance that they won’t be able to continue that,” Japan Research Institute’s Kawamura said. “It’s a pretty dangerous situation now, even before they start to exit."

At the current pace it is virtually assured that the BOJ's reserves will be depleted in the not too distant future. At that point the BOJ will have to approah the government to change legislation, allowing it to short up capital for future losses. How the market will respond to such an unprecedented central bank bailout is unknown.

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km4's picture

time for seppuku part of the samurai bushido honor code

Here2Go's picture
Here2Go (not verified) km4 Sep 1, 2016 11:18 AM

9 trillion here, 9 trillion there, pretty soon you're talking about some serious Mugabe

Manthong's picture

“ ¥9 Trillion Hole “


It gives one pause…

Just where is the event horizon and when does the whole Ponzi collapse into the singularity?


asteroids's picture

The Japanese made their mistake a long time ago in the 1980's. They kicked the can down the road. The FED did the same thing in 2008 You eventually get something that looks like http://www.sciencecartoonsplus.com/gallery/math/galmath2b.php#

Father ¢hristmas's picture

The singularity being the Bank of Intl Settlements.  Coming soon to a theater near you!

nmewn's picture

Nine trillion yen, that's like a buck fiddy right ?  ;-)

Fuku Ben's picture

9 Trillion missing at the Fed & 9 Trillion missing at BOJ

What a coincidence.


flaminratzazz's picture

a tril here a tril there, pretty soon we are talking some real money.

PoasterToaster's picture
PoasterToaster (not verified) Sep 1, 2016 11:05 AM

Why can't they just press delete on that file?  It was created in a similar fashion. 

We're supposed to get all worked up because the control scheme imposed on us is coming to an end.  Oh, they'll try to impose pain all right but if the fingers keep pointing at the perpetrators (the beneficiaries of the fiat printing) then things will work out ok after awhile.

Stay on target...

waterwitch's picture

It works for email...oh wait!

offwirenews's picture

no worries, their new keyboards are en route with re-enforced ctrl and p keys

vegas's picture

A 9 trillion hole? Hell, no problem, just hit that CNTRL-P button a little more often, cuz up till now it's worked so beautifully hasn't it?



LawsofPhysics's picture

Yep, and just so long as the new "money" never gets in the hands of the average citizen, "inflation is contained"....

Unfortunately, all stimulus is fungible....

flaminratzazz's picture

why not just buy all the forests and rivers of the world? should be able to print all the fishes of the sea as well?

Truth Eater's picture

No big deal.  Resident Zero will sign an executive order saying: Let me be clear- we will bail out BOJ. 

Then he can go golfing.

djrichard's picture

{the risk is increasing that the bank’s financial stability will be shaken}

This suggests there's another player who would foreclose on the BoJ.  There isn't such a player.

Soul Glow's picture

Wait!  So NIRP is bad for savers not only because they aren't earning interest - and are paying interest mind you - but because the bond's price is inverse to the said rate and is bought at a premium therefor sold at a loss?

So is this why safes are being sold at a record pace and gold and silver are leading all asset classes in 2016?  My god, what a surprise....

flaminratzazz's picture

what really is amazing is the sheeple are waking up and stampeding.. shouldn't be long b/4 the hard asset panic of 2016.,

philosophers bone's picture

I think I agree with Jim Rickards - inflation (most of it) will come all at once.  There will be exactly ZERO time to react or mitigate against it.

Soul Glow's picture

No gold available for delivery is the trigger.  All wars are fought for gold and when the easy pickings are all gone - Ukraine, Lybia, Venezeula, etc - then a war between super powers will break out.

flaminratzazz's picture

then a war between super powers will break out.


well fvk, then all my  bennie weenies stocked in the basement at for naught?


piss,, shoulda went to the Bahamas with that $

Hillarys Server's picture

At the current pace it is virtually assured that the BOJ's reserves will be depleted in the not too distant future. 

I think I agree with Jim Rickards - inflation (most of it) will come all at once.

Anyone have an approximate D-Day when the yen will hit the fan?

Father ¢hristmas's picture

It has to.  Once things inflate from the source, with today's technology, all other markets have to price it in automatically to avoid the guys at the source taking a loss.


The Anti-_-Sheep's picture

Hard to disagree with someone smarter than most people on this planet. 

Kirk2NCC1701's picture

ZH, please Normalize these numbers to (a) the USD and (b) Japan's GDP, to allow us to compare it to the US Debt.

Being math-phillic, I already did it for myself, but many here are somewhat 'maff-phobic' and may require Tyler's 'maff translation'.

flaminratzazz's picture

maff is my specialty.. let me help.. first we taker the prime number divided by the actual example on page 18 and are given by: x0 = t, x1 = x, x2 = y, and x3 = z which leads us into

Identifying the components of tensor @

or the mixed form,

T ? ? = T ? ? g ? ? , {\displaystyle T^{\mu }{}_{\nu }=T^{\mu \alpha }g_{\alpha \nu },}

or as a mixed tensor density

T ? ? = T ? ? ? g . {\displaystyle {\mathfrak {T}}^{\mu }{}_{\nu }=T^{\mu }{}_{\nu }{\sqrt {-g}}\,.}

and then we JUST HAVE to divide by pie.. French apple is my favorite.. but I also really like cream pies of just about any flavor...


orange juice is good...


I like orange..

youngman's picture

So the Central Bank needs to be bailed out....what is strange about that

tarsubil's picture

Just flip all the negative rate bonds to the BOJ... oh wait...

Cutter's picture

And when the BOJ, the only buyer of JGBs leaves the market? Full blown crisis with rates skyrocketing which quickly far exceed the government's tax base. It all points in one direction: BOJ prints to infinity until it all crashes. As Kyle Bass says, its the most obvious thing on the planet.

flaminratzazz's picture

If it was ONLY BOJ printing to infinity, maybe we could nip this b/4 global ignition.. but alas the digits are piled high and wide.

Bill of Rights's picture

Bleachbit on sale now!!

E.F. Mutton's picture

Invite Krugman and Bernanke for a confab and a plate of Fugu prepared by amateurs.

Put the results on Pay Per View - I'd cough up $100 to watch that.

firstdivision's picture

9T Yen.   So that's like what, 350 freedom dollars?

Pieter Bruegel the Elder's picture

Just print more money.
just do Alt + whatever Japanese symbol for getting screwed

PersonalResponsibility's picture

"How big is the gap? According to Bloomberg as of August, the delta between the balance sheet and face value has ballooned to some 8.7 trillion yen, or $84 billion."

84B lol

You have a printer, that's worth 0

ramgold2206's picture

my printer doesnt spit out much when i press ctrl+AU ??? go figure!




Muad'Grumps's picture

And this is where gold's true function in today's modern central banking system will be revealed. For central banks can never go insolvent. Why? Because all they have to do is revalue gold to heal their balance sheets.

saldulilem's picture

except canada, they done pawned off the whole cupboard

geeves's picture

Conservation of deflation.  It just goes to show you that no matter what stupid paper tricks are tried, central banks can't stave off the depression forever.

Mises Sense's picture

I guess we have to start selling the Yen now. Isn't that what Goldman Sachs and Vipro Markets are expecting us to do. Hell no. Better buy.

khaproperty's picture

All centralbanks will have that kind of losses.

Falling interest causes bigger volume - and other way round shrinks it.

Bigger will not go because interest most is Zero - or nearly.

Indeed problem will be every fast movement of shrinking, what means hiking interstrates.

Therefore Fed should hike carefully and better two little times this year.

It´s a global thing - and a very big one.

saldulilem's picture

they weren't paying attention in the excel goalseek tutorial, tsk tsk tsk

SomethingSomethingDarkSide's picture

Paperclip Assistant here!

It would appear that you are trying to decimate your country into Smoldering Ruins via Inflation.

Perhaps you should also try:

- Carpet Bombing

- Releasing Genetically Modified Diseases

- Nuking Major Cities and/or Economic Hubs

Spungo's picture

I don't understand what the problem is. We already know the BOJ and government are completely bankrupt, but nobody seems to care. It really doesn't matter if the BOJ has negative equity. If people actually cared about things like solvency, they would be running for the doors right now.

Herdee's picture

As kids,we used to joke about what was after a Trillion?It's a ZILLION

To Hell In A Handbasket's picture

lol. Is this even a fucking story? By October nobody will remember and the black-hole will have been forgotten. The BOJ will type in a few numbers and POW, crisis averted. "Thank god for Abenomics and Krugman endorsed QE" So said the fool and the fraudsters.

Tombrownssoul's picture

I  don't really see what the problem is. The BOJ is a private bank which, unlike the Fed has its shares publicly listed in the Tokyo Stock exchange,  has the extraordinary priveledge of printing unlimited amounts of the Japanese national currency. Now this confetti printer has an accounting loss of a few piddling percentage points in the confetti just printed!! Hell, they will just print more!

Father ¢hristmas's picture

Introducing the all new Pat Morita One Quadrillion Yen note!