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Mrs. Watanabe Prepares To Blow The JGB Bubble: Household Holdings Of Japanese Bonds Slide To Lowest In 7 Years

Tyler Durden's picture


Two days ago we posted a very damning analysis of why Japan is finally facing the dilemma of either a major Yen devaluation, or, far worse, a long-overdue pop in the Japanese Government Bond (JGB) market. As expected, the conventional wisdom was that there is no danger of a JGB collapse as local households just can't get enough of JGBs following 30 years of straight deflation. As even more expected, conventional wisdom always ends up wrong, and this may be the case now. Bloomberg reports that "Finance Minister Jun Azumi’s efforts to get Japan’s households to increase investment in the nation’s debt are failing as holdings of government bonds fall to a seven-year low." Combing through the Japanese quarterly flow of funds report shows something very disturbing - the last bastion of JGB ownership, Japan's households, have started to shift out of bonds, which are now yielding 0.27% for the retail 5 Year bond, and about 1.00% for the 10 year, and are now putting their money straight into mattresses. "Japanese households owned 3.09 percent of domestic bonds in the final quarter of 2011, a decrease from 3.2 percent in the third quarter and the lowest since 2005, Bank of Japan data released March 23 show." And the worst news for any domestically funded ponzi regime: "Mrs. Watanabe” as many are housewives, have instead increased foreign-currency deposits and cash, according to the BOJ data.  "It’s a case of retail JGBs not having enough yield,” said Naomi Fink, head of Japan strategy at Jefferies Japan Ltd."Households are accumulating cash and using financial investments to diversify into higher yields and JGBs don’t really provide this." ..."Individual investors are holding cash rather than bonds and other financial assets because they are wary of making risky investments, said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo." Needless to say, when even Japanese households have given up, it's game over... for bubbles in both bonds and in "conventional wisdom."

Bloomberg has more:

Households “don’t see any reason to continue buying bonds,” said Hiromichi Shirakawa, chief Japan economist at Credit Suisse AG and a former Bank of Japan official. “Deposits are much more liquid than JGBs. So if they do have some incentive to spend that money, they tend to prefer more liquid financial assets.”


Japan’s Finance Ministry has set up a Twitter account to sell government bonds to households. Azumi is also sending thank-you notes to buyers of debt to fund the nation’s rebuilding after last year’s record earthquake, and offering gold coins to those who invest more than 10 million yen.


The moves haven’t spurred individual investors to take on more of the bonds, with banks and foreigners increasing their debt holdings instead.


Japanese bonds owned by overseas investors climbed to 8.5 percent of the total at the end of December, the highest since 2008, while financial institutions held 65 percent, an increase of one percentage point from the previous quarter, the BOJ data show.

Of course, even Japan is now worried about being seen as a ponzi:

Bank of Japan Governor Masaaki Shirakawa told the parliament yesterday that government bond yields may rise if the BOJ is perceived as financing the government. The central bank unexpectedly increased its planned bond purchases by 10 trillion yen and set a 1 percent inflation goal on Feb. 14.


The yield on Japan’s benchmark 10-year government bond climbed to 1.06 percent on March 15, the highest since Dec. 5.
It traded at 1.01 percent yesterday in Tokyo, a 7 1/2 basis point increase from the more than one-year low of 0.935 percent in January.


Ten-year notes yielded 124 basis points, or 1.24 percentage points, less than similar maturity U.S. Treasuries yesterday, compared with 219 basis points a year earlier.


The yen has depreciated 9 percent in the past three months, the worst performer among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The Japanese currency was little changed against the dollar at 82.85 yesterday in Tokyo.

There is a simple solution:

Vice Finance Minister Fumihiko Igarashi said yesterday it would be better if more overseas investors held Japan’s government bonds to ease the risk of “one-sided” selling.

And foreigners will be delighted to buy JGBs.... just hike interest rates from a meaningless 1% to at least 2% to match the US 10 year, and make JGB's attractive. Oh wait, there is a problem with that. As Andy Xie pointed out: "If the bond yield rises to 2 percent, the interest expense would surpass the total expected tax revenue of 42.3 trillion yen."


In the meantime, the risk of "one sided selling" is higher than it has ever been in the past 3 decades.


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Wed, 03/28/2012 - 09:59 | 2297078 PaperBear
PaperBear's picture

All these financial buubles lined up to be popped - what a crime.

Did anyone watch the Warren Pollock video about 'Definitive on Derivatives Blowup – Ponzi’s Fail in Contraction'

”indicative of the first guy out of the door of a movie theatre that is caught on fire and with Greece event what happened was that these derivative instruments were placed at risk, at performance risk, they’re all going to fail, those were the ones related to Greece. And what they decided to do was to cover the losses of this Greek event and in hindsight of this event this realisation that these things are fraudulent caused this market to shrink from $247 TRILLION to $230 TRILLION.”

With the CDS derivative market having shrunk by nearly 7% since March 20th we might not have long before it reaches terminal velocity.


Wed, 03/28/2012 - 10:07 | 2297094 Pladizow
Pladizow's picture

Bass & Hendry Bitches!

Wed, 03/28/2012 - 10:31 | 2297108 Theta_Burn
Theta_Burn's picture

It's *lines like these, that I so regret NOT choosing the moniker JGB_Bubble...

Wed, 03/28/2012 - 12:34 | 2297620 LowProfile
LowProfile's picture

I have oft wondered if the next big shock would come from Japan, not Europe.

Wed, 03/28/2012 - 10:14 | 2297114 Buckaroo Banzai
Buckaroo Banzai's picture

Mrs. Watanabe? Huh. Any relation to this guy?

Wed, 03/28/2012 - 10:15 | 2297115 Unprepared
Unprepared's picture

I thought Government bonds were risk free.

Wed, 03/28/2012 - 11:06 | 2297291 GMadScientist
GMadScientist's picture

They the government.

"Hey, what's the chance we'll really have to pay these?" - Sec of Treas Dimon


Wed, 03/28/2012 - 10:47 | 2297187 JohnKozac
JohnKozac's picture

Mrs. Watanabe can always move er hard earned, life long savings into the generous "High Yield" Bank Saving Account.....0.09% for safety, you understand......

Thu, 03/29/2012 - 02:18 | 2299758 Kobe Beef
Kobe Beef's picture

They should be buying PMs. Duh.

Wed, 03/28/2012 - 11:34 | 2297414 tempo
tempo's picture

Radation levels are dangerous throughout Japan (

Wed, 03/28/2012 - 11:57 | 2297499 Arnold Ziffel
Arnold Ziffel's picture

The wealthy Japanese are moving out I read.....first rats off the ship philosphy.....

Wed, 03/28/2012 - 12:17 | 2297566 Not Too Important
Not Too Important's picture

But they're taking their radiation with them. Good luck with the Nasi Lemak cleaning out their lungs there in Johor Baru.

Wed, 03/28/2012 - 14:54 | 2298143 RollinsArline3
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my classmate's sister makes $67/hour on the laptop. She has been without a job for 6 months but last month her pay was $20212 just working on the laptop for a few hours. Read more on this web site .....

Wed, 03/28/2012 - 10:05 | 2297088 Jason T
Jason T's picture

Mathamatically, our debt interest will consume all our tax revenues at some point in the future too.  Debt based money system, designed for the banks to own everything.

Wed, 03/28/2012 - 10:22 | 2297119 centerline
centerline's picture

Economists try and try to explain that this is not the case. But, clearly we see it happening. I sincerely believe that they miss the big picture because they think economics is a science. It is not a science. Not everything that involves math is a science.

Anyhow, yields continue to drop. People are forced into riskier assets in order to chase yield. Eventually cash flow is impaired. That is the point of no return. It is not insolvency. It is the inability to continue to "keep the lights on" by moving funds around within a partiuclar time frame. The system is winding down due to macroeconomic debt saturation.

Wed, 03/28/2012 - 11:12 | 2297319 MachoMan
MachoMan's picture

This is one of the issues that befuddles me...  How can people ignore their daily observations of economic conditions when presented with other information from an "economist" whose data and hypotheses are not only intuitively suspect, but inherently biased?  Boggles the mind...  It's kind of the whole "I don't need a weather calculator, I can just look out the window" argument.  Economists use the word "science" like Ron Burgundy uses the word science.

Wed, 03/28/2012 - 12:35 | 2297627 LowProfile
LowProfile's picture

Ixquick (search) for Normalcy Bias.

Wed, 03/28/2012 - 10:15 | 2297121 LawsofPhysics
LawsofPhysics's picture

Related to this.  I still maintain that the greatest theft is still yet to occur.  It will occur when all the central planners/bankers all get together and decide to "call it even" on the derivatives they all hold.  They will also "revalue" all the gold in their vaults (after significant price fixing and capital controls in the real world) and suddenly they will all be solvent again.

In short, there will be a debt jubilee, it simply won't be for you or I, and gold will be revalued, again, just not the gold you or I hold.

This will be the greatest theft mankind has ever seen and we are not there yet.  Besides, this has been the endgame of fiat collapse and currency devaluation throughout history, why would we think it would be any different this time around?

Wed, 03/28/2012 - 10:28 | 2297153 Dull Which
Dull Which's picture

Something has to "give" and TPTB will hardly go down without a fight so you may well be right. If only I could jubilee my mortgage....

Wed, 03/28/2012 - 10:38 | 2297171 LawsofPhysics
LawsofPhysics's picture

What the central planners fail to recognize is that all economies are really local.  Depending where you are and your financial situation, you can "jubilee your mortagage."  For example, lawyer up and politely ask the bank to see the original note and clean bill of title.  If they can not produce this, you own the property in so much as you can still pay the property taxes.  If you are in a development (like many in california) where the entire neighborhood is underwater.  Get together and everyone simply stop paying.  Many have already done this and have been using that money to enjoy big returns as the Fed reinflated the market.

Talk to anyone who has come from Pakistan or India or China, economies are indeed local.  Want to do anything in these countries?  Pay the bribes to the locals first.  This is the future of the world.  Now envision that world with less energy available, because that is where we are headed.

Wed, 03/28/2012 - 11:08 | 2297304 MachoMan
MachoMan's picture

Am I missing something or would this more negatively affect creditor nations (China) than debtor (U.S.)?  Also, how do you revalue the gold in bank vaults, but not gold at large?

Wed, 03/28/2012 - 11:11 | 2297313 LawsofPhysics
LawsofPhysics's picture

simple, make it illegal by degree for the average Joe, but not the central banks.  this has been done before.

Long black markets.

Wed, 03/28/2012 - 11:15 | 2297326 MachoMan
MachoMan's picture

If they revalue, then the gold held in private hands will be revalued also (hence the black markets)...  I believe we are on the same page, it's just your drafting was a bit off.

Wed, 03/28/2012 - 11:39 | 2297406 Not Too Important
Not Too Important's picture

I hold quite a bit of GLD. It's all safe, I saw it on CNBC the other night, in a super secret HSBC vault somewhere near the Canary-In-A-Coal-Mine Wharf.

Every pallet had a sticky note saying it wasn't hypothecated, and that it was certified non-tungsten.

Everything is fine, unless the sticky note falls on the floor . . . I'm not worried.

Wed, 03/28/2012 - 11:35 | 2297422 Bam_Man
Bam_Man's picture


All this talk about "outlawing private ownership of gold" or "taxing it to oblivion" is nonsense. This is not 1933. In 1933 gold ownership was widespread throughout much of the population. Today it is highly concentrated among the 0.5% who own and control the government.

The only way the "government" will outlaw or tax gold is if we get a new government that is not owned and controlled by the super-rich. That would require a revolution which I just don't see happening in this country of dumbed-down lazy, obese, diabetic lumps.

Wed, 03/28/2012 - 11:42 | 2297447 Not Too Important
Not Too Important's picture

The sad thing is that there never was, or is, a valid economic reason to confiscate anyone's personal gold. Ever.

It has always been to enrich the .0004%'s personal assets.


Wed, 03/28/2012 - 12:34 | 2297621 Koffieshop
Koffieshop's picture

Mathamatically, our debt interest will consume all our tax revenues at some point in the future too.


What happens is that the Fed ends up being the only buyer of T-Bills. The Fed has to hand over it's profit back to the US Treasury however. What does this boil down to, you ask? Money Printing. Without any specific event interrupting the process, it will escalate util it's like Zimbabwe.

Wed, 03/28/2012 - 10:04 | 2297089 Terminus C
Terminus C's picture

Between Fukushima and the bond bubble, Japan is fucked.  If Japan crashes, the world goes with it.

Wed, 03/28/2012 - 10:09 | 2297100 Sandmann
Sandmann's picture

No Fukushima is the gateway to a New Future using old GE Technology to transport the Pacific Region into a World of Fantasy - here in Europe the goal will be achieved by a Bonfire of The Vanities as money ceases to have any intrinsic value and a Socialist Nirvana unfolds where the Cash Nexus is eliminated by Bankers yearning to enter the Marxian Paradise  - these Post-LIfe Experiences will represent the Terminator Gene so carefully nurtured by Monsanto

Wed, 03/28/2012 - 10:53 | 2297216 Overflow-admin
Overflow-admin's picture

The Genophage! (Mass Effect)

Wed, 03/28/2012 - 10:05 | 2297093 Elmer Fudd
Elmer Fudd's picture

There no data on whether Mrs. Watanabe owns any PM's in that safe, Wonder why...

Wed, 03/28/2012 - 10:15 | 2297120 Dr. Richard Head
Dr. Richard Head's picture

A beach combers paradise is coming to the Western US shores

Thu, 03/29/2012 - 02:24 | 2299767 Kobe Beef
Kobe Beef's picture

Yeah, because Cesium, Strontium, Uranium & Plutonium are all rare and valuable elements. "Look Ma, I found me some Neptunium!" <croaks, dies>

Take your chances with that debris.

Wed, 03/28/2012 - 10:08 | 2297095 SMG
SMG's picture

Don't worry, the FED will be lining up soon to fill in the gap. (I joke, but in this world it could come true.)

Wed, 03/28/2012 - 10:57 | 2297242 EscapeKey
EscapeKey's picture

Not a joke. The BOJ will buy American bonds, the FRB will buy Japanese bonds. And both will in turn swap with the ECB and the BOE.

Wed, 03/28/2012 - 10:13 | 2297106 Red Heeler
Red Heeler's picture

Is cash a euphemism for gold? I hope Toshi ain't hoarding Yen.

Wed, 03/28/2012 - 10:22 | 2297111 The Big Ching-aso
The Big Ching-aso's picture



They should ask Mr. Wantaknobbie if he gives a shit about her blowing bubbles.

Wed, 03/28/2012 - 10:29 | 2297157 CrimsonAvenger
CrimsonAvenger's picture

I asked Bubbles, and he said he didn't mind a bit.

Wed, 03/28/2012 - 10:15 | 2297116 q99x2
q99x2's picture

Bankster Governments lose the public's vote of confidence.

Wed, 03/28/2012 - 10:16 | 2297122 Eclipse89
Eclipse89's picture

<--- Tom Stolper knew that.

<--- Tom Stolper didn't know that.

Wed, 03/28/2012 - 10:17 | 2297126 bank guy in Brussels
bank guy in Brussels's picture

Japan might

- Build safer new generation thorium nuclear reactors

- Allow large-scale immigration of people from countries like the Philippines, who get along well in Japanese society, to fuel economic growth

- Monetise debt in the meantime, to float the Ponzi a little longer, in a programme supervised by Richard Koo

And maybe they could make it.


Wed, 03/28/2012 - 10:58 | 2297248 Clowns on Acid
Clowns on Acid's picture

Yeh bank guy - and maybe they will allow they Filipinos to wear kimonos.

Monetize the debt? They are the originals. WTF?


Wed, 03/28/2012 - 11:27 | 2297385 Not Too Important
Not Too Important's picture

Too late for that. They have five years tops.

The bonus is, with video cameras and the Net, we're going to watch the extinction of a whole country live, in all its' radioactive glowing glory.

Then the rest of us.

Wed, 03/28/2012 - 10:19 | 2297131 Rainman
Rainman's picture

More and more Japanese are waking up to the reality that their government has been lying to them about the Fuku radiation spread. It's been a year, so the 3-eyed calves being birthed must be a giveaway.

Wed, 03/28/2012 - 10:39 | 2297177 Monedas
Monedas's picture

In the land of the blind.....a three eyed man is just a presumptious show off !   Monedas  2012   Comedy Jihad Peephole Tour

Wed, 03/28/2012 - 11:47 | 2297466 Not Too Important
Not Too Important's picture

With cell phone cameras and the Net, anything of this sort is immediately put down. Calves, goats, children - it's all got to be eliminated as quickly as possible.

Can't have poor visuals/bad PR disrupt the last dying gasps of the Great Ponzi.

Thu, 03/29/2012 - 02:36 | 2299790 Kobe Beef
Kobe Beef's picture

The absolute best psychopathic Japanese government policy so far is paying local governments to burn Fukushima waste all across Japan. I heard one minister saying "we have to share the pain". That way everyone can be irradiated.

What a wonderful policy: So the next time there's a flu outbreak, we should put all the carriers on airplanes & fly them across Japan, to "share the pain."

BSE in the beef? Spread it around at a discount: "Share the pain"

HIV in the blood? Share the needles: "Share the pain"

The Japanese leadership has gone FULL RETARD.


Wed, 03/28/2012 - 10:26 | 2297148 ZackAttack
ZackAttack's picture

Iran could defeat the west without firing a shot, just by cutting off Japan's oil.

Wed, 03/28/2012 - 10:27 | 2297152 ISEEIT
ISEEIT's picture

Dollar peg time.

Wed, 03/28/2012 - 10:28 | 2297154 Clay Hill
Clay Hill's picture

Cashing out to buy lead lined kimonos?

Wed, 03/28/2012 - 10:32 | 2297160 Dr. Engali
Dr. Engali's picture


"it would be better if more overseas investors held Japan’s government bonds to ease the risk of “one-sided” selling"


It would be better if government got out of the way and let the zombie banks collapse instead of enriching themselves and the bankers on the backs or the Japanese people that they love to radiate. Who ,by the way ,now claim that the Japanese fear  of being radiated is  a disorder. 

Wed, 03/28/2012 - 10:34 | 2297162 Monedas
Monedas's picture

A Mistress is something between a Mister and a mattress !  Sorry, old joke !    If you are going to hide paper money under your mattress....think of gold as extremely good paper money !   Monedas  2012    You can melt gold....but it's pretty hard to burn it in your average mattress fire !

Wed, 03/28/2012 - 10:37 | 2297169 JohnKozac
JohnKozac's picture

Even the Japanese will wake up and disintermediate out of these debt instruments when they realize they are backed by....?????

Wed, 03/28/2012 - 10:44 | 2297186 derailedcapitalism
derailedcapitalism's picture

Individual retail investors in Japan typically own JGBs indirectly through currency deposits at their banks, postal savings, pensions, etc... This decline could be a result of retail investors essentially swapping JGBs for money market instruments with the bank. While exposure remains nearly identical, direct retail investment in JGBs would decline as a result.

A better indicator would to be see what banks are buying/selling as roughly 25 - 30% of assets under management are in JGB's. 

Regardless, bumpy ride ahead...

Wed, 03/28/2012 - 10:45 | 2297189 bobthecat
bobthecat's picture

LIst the link to the article....???

Wed, 03/28/2012 - 10:48 | 2297197 Dead Canary
Dead Canary's picture

Don't fight it. Just relax, open a bottle of wine and let the depression sink in.

Wed, 03/28/2012 - 11:56 | 2297487 Not Too Important
Not Too Important's picture

Or glow-in-the-dark sake.

Wed, 03/28/2012 - 10:53 | 2297219 Clowns on Acid
Clowns on Acid's picture

No worries, Ben will fly his helicopter in and just buy the JGBs. Where is the problem?

Ben the human bubble Bernanke has to go back teaching high school students about monetary policies of 1929. Then stumble over the questions asked.

Wed, 03/28/2012 - 12:40 | 2297644 Dingleberry
Dingleberry's picture

Exactly! Ben did it for the europeans. I believe he is an equal opportunity printer. The central banks dillema is as follows: everyone plays ball together, or it's fight club. And Ben has the biggest printer (hedonically adjusted).

Wed, 03/28/2012 - 10:53 | 2297223 dwdollar
Wed, 03/28/2012 - 11:07 | 2297299 GMadScientist
GMadScientist's picture

Is this just a side-effect of inflation hitting a country where most transactions are conducted in cash Yen?

Wed, 03/28/2012 - 11:08 | 2297302 bobola
bobola's picture

"If the bond yield rises to 2 percent, the interest expense would surpass the total expected tax revenue of 42.3 trillion yen."

Great point.  They are backed into a corner and have run out of tricks.  Like the Wizard of OZ when Toto starts pulling the curtain away.  Absolutely 100% forced to keep their interest rates near zero.  I would not want to be a major land owner in Japan now. 

So, our Fed central bank faces the same situation.  If inflation rears its ugly head, we may be even more hosed.  Would be a race to the bottom if Bernanke was forced to raise interest rates.  But then again, with food and energy not calculated into the CPI, he has less to worry about, right..??

Wed, 03/28/2012 - 11:37 | 2297431 Freegolder
Freegolder's picture

Who will be the first to go 'pop'?

My money is on Japan, next best bet the UK. Then the US. Europe is letting govt bond yields rise, so not an issue there.

Would anyone please have the link to the full Bloomberg article, I can't find it over at their site, annoyingly.

Cheers ZH.

Wed, 03/28/2012 - 11:55 | 2297482 Not Too Important
Not Too Important's picture

Japan is already the first to go pop. Xie didn't go far enough. They're finished.

Next will be the US/Canada, when everyone realizes the water and food is radioactive. We're next in the jetstream.

The UK and EU can still print, until they can't import non-rad food.

Follow the rad spread through the jetstream, and invest accordingly. The last ones standing will be Southern Hemisphere countries with arable farmland and water, fairly strong medical support structure and loyal police/military, They have the energy.

The last to turn out the lights will be the stronger South American countries. Once Africa loses their China patrons, they're all finished.


Wed, 03/28/2012 - 11:47 | 2297465 BigInJapan
BigInJapan's picture

What all those foolish housewives over here don't understand is that foreign currency accounts are not insured by the Japanese government.

Bank goes tits-up, that money is in the wind.

Guess which product J-banks are pushing HARD these days??? Yup.


Wed, 03/28/2012 - 12:07 | 2297536 Not Too Important
Not Too Important's picture

Then why don't you figure out how to enlighten them?

It takes a man to help. It takes a squid to suck.

Wed, 03/28/2012 - 14:37 | 2298060 Rob Jones
Rob Jones's picture

You make a very good case for buying physical PMs.

Wed, 03/28/2012 - 11:50 | 2297473 americanspirit
americanspirit's picture

Mrs. Watanabe has discovered that Japanese bonds are radioactive, made so by a particularly nasty isotope of screwedium which is a degradation byproduct of hopium. Sayonara.

Wed, 03/28/2012 - 11:59 | 2297507 Not Too Important
Not Too Important's picture

It's the women in Japan that don't suffer from ancient Samurai Night Fever. They may not be used to speaking their minds, but they know what's going on.

They will do whatever is necessary to provide what comfort they can to their dying children. That means having cash on hand for necessities, such as imported vegetables and water.

It is the women of Japan that will provde the world with the real meaning of Japanese honor.

Wed, 03/28/2012 - 12:04 | 2297529 Nukular Freedum
Nukular Freedum's picture

I wrote a post a few months about a little considered aspect of this situation. Briefly put I do not see how a depreciating yen can fail to spike yields (since it will stoke the economy) thereby putting the government in a hopeless position viz interest repayments. This is a paradox much to be feared:

I followed this post up some months later with the following which may interest somebody:

Wed, 03/28/2012 - 14:23 | 2297993 Pancho Villa
Pancho Villa's picture

Yields of 0.27% for 5 years and 1% for ten years are totally inadequate to compensate for the risk of a JGB collapse. Japan has painted itself into a corner. At current interest rates it makes no sense to buy JGBs. But they cannot afford to raise interest rates (and if they did it could trigger a collapse in JGB values, making people even less likely to buy them).

They could try to fund the government by selling it holdings of UST's. But this would cause the yen to strengthen and kill their export industry.

All roads seem to lead to the printing press.

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