The War For The BOJ's Balance Sheet Gets Real

Tyler Durden's picture

Over the past month, the world has finally awakened to the reality that when it comes to easing, there is more than just one central bank (i.e., the Fed). in fact, as we have been showing since early this year, the bulk of the easing over the past 5 months has happened elsewhere, primarily in Europe with LTRO 1+2, and subsequently at the BOE, and more recently at India and Brazil. Yet some holdouts still remain. One of these naturally is China, which everyone would love to see cut RRR or even the benchmark rate, yet which as recent CPI data has shown still has lingering packets of inflation precisely where it hurts: food (and of course recall China's Schrodinger economy). Which leaves Japan, which already eased more a few months back when it expanded its LSAP program... but it is never enough. Needless to say strategists, in their quest to shake any and every central banker here or there for some free money, have been seeing imminent BOJ easing in the form of yet another Y5 trillion LSAP any second now. Yet it is one thing for bankers to do what they are programmed to do, which is demand more free money, it is something very different when politicians step in and defuse the myth that any central bank is even remotely independent, especially when reelection is at stake. As Bloomberg points out this morning, the fight for the BOJ's "independent" balance sheet is starting to get lethal.

The Bank of Japan sees protecting its own balance sheet as more important than ending deflation and spurring the world’s third-largest economy, according to the former minister who led a clean-up of the nation’s banks.


“This isn’t difficult — it’s Economics 101,” said Heizo Takenaka, 61. “They think the balance sheet is more important than Japan’s economy. That’s why they are ok with leaving deflation,” said Takenaka, who served in former Prime Minister Junichiro Koizumi’s cabinet. 


Political pressure for expanding easing was highlighted by lawmakers this month rejecting a government nominee for the BOJ’s board who some saw as lacking enthusiasm for bolder measures. Governor Masaaki Shirakawa and his officials should loosen monetary policy further at a meeting on April 27 after pledging “powerful” easing to achieve an inflation goal of 1 percent, said Takenaka, a professor of policy management at Keio University in Tokyo.

Yet at the end of the day, just how much capacity for expansion at the BOJ is there. Below we show the balance sheet of the Japanese central bank as a percentage of total GDP. At 30% of GDP it is 50% greater than the Fed's. Which means two things: 1) all those years of modest monetization have done absolutely nothing to stem the deflationary tide, and the result is that if politicians win the war for the BOJ, the next easing episode will not be a gradual one, but will be full on Fed-like "sturm und drang" which will result in some major shifts in the precarious balance within the Japanese economy, as Andy Xie explained a month ago; and 2) judging by the relative size of the Japanese and US central balance sheets, who do you think will ease first?

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jus_lite_reading's picture

I've been closely monitoring Japan since last March... I know that if another major earthquake strikes Japan, it's pretty much a given that the Fed will "not monetize debt" and we'll be saying hello to $7/gal gas...

Colombian Gringo's picture

Looks like the Japanese are committing mass seppuku. Their economy is literally being disembowled by Fukushima and decades of political mismanagement.

Oh regional Indian's picture

what a weird show. 

FED+BOJ= Laurel And Hardy

Joined at the hip. The Fed used BOJ for a little over 6 decades as it's relief valve. It's carry currency of first and last resort.

This is how bad it is in the open. That derivative infographic is chock full of toxic yen that cannot go home. When that finally starts (each sovereign (hah!!!) become a sink-hole for it's own fiat.... shudder to think about the great un-wind.



LawsofPhysics's picture

Er okay, by the same logic, as the debt continues to be outright monetized (cause we all know it has to be, otherwise all governments go broke) then we are looking at $8.00 gal gas.  So what are you saying?  I am confused.

How about simply letting the bankrupt ideas and bad business models and governments simply go bankrupt and start over?

jus_lite_reading's picture

I put that in quotes because the Bernank said they are NOT monetizing debt!! LMAO 


LowProfile's picture


How about simply letting the bankrupt ideas and bad business models and governments simply go bankrupt and start over?

Because then the system collapses...  And 7 billion heads are rudely ripped from their asses, AKA "The Great Awakening".

Still wondering why they are doing every thing possible to extend The Ponz (r)...?


I'll keep saying it:  The Fed will buy every last scrap of debt to "save" the system at the expense of the currency.

LawsofPhysics's picture

If the Fed is killing currencies to buy debt, then they will soon have no valid currency left with which to buy anything.  At which point PMs are "revalued".  This has been the plan all along.

MillionDollarBonus_'s picture

I agree with Professor Takenaka. It would be simply suicidal for the Bank of Japan to contract its balance sheet. This will cause a credit contraction and interest rates will soar, putting immense pressure on Japanese businesses and consumers alike. Japan has learned a hard lesson about the effects of impotent monetary policy over the last decade. Monetary and fiscal stimulus measures need to be in sufficient size in order to produce lasting results. Japan's central bankers need to get serious, and start pursuing bold and revolutionary monetary stimulus programs to kickstart growth in their economy.

Global Hunter's picture

MDB got me with the new avatar, I had a reply all crafted until I caught on, nicely done sir! 

Belarusian Bull's picture

At first, i was decieved by the new avatar as well... but when i saw the very first sentance, i knew it was him. So all i had to do to save my time is look at the name bar :)

hangemhigh's picture


"Monetary and fiscal stimulus measures need to be in sufficient size in order to produce lasting results. Japan's central bankers need to get serious, and start pursuing bold and revolutionary monetary stimulus programs to kickstart growth in their economy."'re right about those flaccid peenies at the boj.  size does matter.  it's what the bitchesz are always begging for.

me, i'm all about winning....and i love the smell of irradiated fiat in the morning......the whiners and snivelers on the wrong side of this moan meister trade......let them eat yellow cake..... 

cranky-old-geezer's picture



I agree with Professor Takenaka.

Of course you would, you communist elite-worshiping banker suckup. 

People like you have no conscience.  Your mind is permanently damaged by your lust to be accepted by TPTB.  You're worthless as a human being, you should be put out of your (our) misery.

Japan's central bankers need to get serious, and start pursuing bold and revolutionary monetary stimulus programs to kickstart growth in their economy.

Kickstart growth?  After 20 years of "easing" and "stimulus" haven't worked at all?

You know damn well it's not about Japan's economy.  You know damn well they don't give a fuck about Japan's economy, and you don't either.

It's about the government looting the people via BOJ's printing press, and you know it you worthless piece of banker cock sucking trash.

"Kickstarting the economy" is a weak cover story for government looting the nation, and it gets weaker as time goes by and more people see it.

We've had 20 years of watching Japan's economy NOT recover after 20 years of "easing" and "stimulus" bullshit, yet you morons keep parroting that same weak cover story and you're using it here in America now, gotta have "easing" and "stimulus" to kickstart America's economy.  

1% inflation goal?  Bullshit.  Japan's inflation is 7% - 10% right now.

There should be NO inflation. The money supply grows with GDP and NO MORE.  If GDP contracts, like it is in Japan ...and America... the money supply contracts with it so there's NO INFLATION.

But if BOJ turned off the printing presses, Japan's overspending government would run out of cash and collapse, because they won't reduce spending like the rest of the people are forced to reduce spending during an economic contraction.

Japan's government is the biggest threat to Japan's national well being, spending the nation into unbelievable debt, looting the people into poverty at the same time, just like this government here in America.

And central bankers are the ones allowing them to do it.

Yes, it's good to have your insane banker suckup views here on ZH so people like me can expose your thinly-veiled lust to loot whole nations into poverty.

Belarusian Bull's picture

I liked your last avatar better...

theTribster's picture

Nicely said. Its coordinated, the Fed and Boj and ECB (and IMF, WTO, WB, etc) have a plan and are pursuing it. I know there are many stupid people that run the systems but they aren't really making any decisions - they just execute. The gubmints are aligned (Euro, Japan, USA) as are their CBs. We are in a final phase, an endgame whereby debt becomes massive at every level (personal, sovereign, corporate, etc), most assets are inflated (food, energy primarily) while others are deflated (housing, precious metals).

The crash will be global, the financial and economic integration guarentees it. I don't believe they have control over the financial systems any longer only influence now, and that is waning. More QE is of course on the way, this will be a massive amount of new money injected into the system causing further inflation in some asset classes and deflation in others. The next (and last) step for the system is to convert all retirement and savings to government issued bonds, this will be done AFTER the next crash because it will be such as easy sell.

At that point its over. I don't see any way around it, western countries will be so indebted that banksters will literally own everything - much like they do in Greece which is a proxy for what's coming to the rest of Europe and the USA (and Australia and Canada and Japan).

I've read that the American banksters are planning to allow home owners to rent their homes instead of kicking them out after foreclosure, isn't that nice? After the next crash, the continued growing unemployment and the shitty jobs that are available most Americans will see this as their only choice - becuase it will be. All this at a time when food and energy costs continue to rise! When it finally plays out it will be described as the perfect storm of perfect storms - nobody could have seen this coming -:)

Given the overt actions of the gubmints around the world, it should be (and is) fairly clear that what is coming isn't good for the people. The fact that they got away with everything they have over the last 12 years has emboldened them to make even bigger moves, we'll get to experience moves these over the remainder of this year and into 2013.

One thing we can count on is expanding wars, this is always a result a financial meltdowns. Since this is a global financial meltdown it means either global wars or a war on a global scale, a World War. We need the system to crash and burn otherwise it will destroy most of us and most of the planet, which unfortunately is the plan (I believe). They are certainly willing to sacrifice a portion of the planet and a substantial portion of human life to achieve their goals, if anything is clear that should be.

The CBs will effectively own the world (minus BRIC countries) and control everything in it, see JP Morgan/Chase positions in the commodity markets - they basically own/control all of the food commodities since Blythe took over. They control the precious metal markets, the control the currency markets - not by themselves but along with the other banks that act as a proxy for the CBs. Although I would arhue that JP and Goldman are the worst of the bunch (BofA close behind).

As I've said in other posts here, its really hard to believe this is actualy happening but the evidence is overwhelming. The only things that can be disputed now are timing, how bad, how long, triggers, and eventual outcomes otherwise its pretty clear what is coming.

I am short the japanese and european bond markets, extremely volatile but the trend is clear and the ultimate outcome is even clearer. The same is true for both curencies, the Euro and the Yen are destined to decline a lot more over the coming months - in fact the Euro will likely reach par with the USD before it (and the Union) dissolves. 

They can only print money for so long, they can only monetize debt for so long...How long is debatable but most would agree that we are close the endpoint, I believe its called the minsky moment.

cranky-old-geezer's picture



They can only print money for so long, they can only monetize debt for so long...How long is debatable but most would agree that we are close the endpoint, I believe its called the minsky moment.

I'll tell you exactly when the endpoint is, for America at least. It's when the asian bloc dumps the dollar, completely rejects it, and we suddenly have to buy China's stuff in Yuan or Remimbi.  That's when the dollar crashes ...and America crashes with it.

Because when China dumps the dollar, everybody else dumps the dollar too. 




Postmortemism's picture

Hey Cranky, stop wasting your keyboard. You have no idea what MDB is really saying if you think you have to "rebuke" him. All he does is distill popular arguments into their most refined idiocy. He's fully aware, but more so, of what you're saying. He's a step ahead, not behind, you. It's complete sarcasm.

MeelionDollerBogus's picture

*correction* forcing up the value of yen vs USD - not contracting the balance sheet of the BOJ - would be a good start.


Schiff called it right that a powerful yen would allow importing raw materials for re-building. Right now that must be Japan's #1 priority. One of two things MUST happen

#1 rebuilding using imported materials

#2 saving their people using emigration

There is no 3rd choice.

AUD's picture

The Bank of Japan sees protecting its own balance sheet as more important than ending deflation and spurring the world’s third-largest economy, according to the former minister who led a clean-up of the nation’s banks.

Pure obfuscation. The balance sheet of the BoJ has been junk for years, it's just that those who hold Yen balances are to fucking stupid to know or care.

firstdivision's picture

WTI is on a tear this morning.  The Muppets must be closing their short positions at a larger loss than $0.17/bbl

LawsofPhysics's picture

I was considering oil shorts two months ago, got busy, just never happened. In this case, a good thing.  PSLV and PHYS seem to have found a stable level, time to buy ahead of the next dollar smash?

SheepDog-One's picture

Equity markets go up 45%, underlying currency remains at about the same level give or take a couple %. 'Tarded.

SheepDog-One's picture

WTI action up must be due to the brilliant ObaMao's new iron-fisted oil price control policy.

firstdivision's picture

I wouldn't think that would be this cause, as nothing has really been done. I keep checking the news and do not see anything that should be causing this vertical maneuver. Is Steven Perkins trading oil again?

SheepDog-One's picture

Then again for over a year QE3 hasnt been done, officially anyway,  but good enough just spreading rumors of it to get 4,000 points on the DOW.

GeneMarchbanks's picture

Ex-MS Andy Xie is as sharp as a puddin' pop.

Dr. Engali's picture

Is expanding the balance sheet the only way these people can think? Are there no free market creative thinkers out there? I have an idea.... Say fuck you to the banks, let them explode, and move on.

SheepDog-One's picture

LOL exactly, this is all RETARDED! Now the only course of anyone is to expand the balance sheets? May as well just hire Manchester United to run the world, I bet they can kick a can around REAL good! 

This nonsense has been going on full bore for 4 years, 'anything to save a few banksters' world economic policy....ENOUGH ALREADY!

Global Hunter's picture

agree in principle but Man Utd are the team of the NWO glory hunting poseurs.  We'd need to draft in a club that was the team of the people, Liverpool FC would do nicely for your purposes.  You'll Never Walk Alone.

SheepDog-One's picture

'Easing' holdouts? OFF WITH THEIR HEADS!! 


BigInJapan's picture

Ahh Japan... hurtling head-on toward full blown communism...

LawsofPhysics's picture

"hurtling head-on toward full blown fascism..."


fixed, in fact I'd say we are all fascists now.

bnbdnb's picture

Just print a few million yen per person and send each Japanese citizen a check. Deflation problem solved.

Thomas's picture

Ol' Kyle Bass thinks Japan is the next ground zero.

Oh regional Indian's picture

Well Thomas, literally and fuguratively, it already is.


jmcadg's picture

For once MDB is talking sense ...
I've got some USDJPY calls ready and waiting ;)

DeadFred's picture

When I look at the balance sheets I see things even a different light. Using a dancing analogy if you go to a party who's a more likely partner, the girl who's 'danced' with two partners (plus one lite partner) in the last few years or the the one who's been 'dancing' with a different guy every night for decades? Who you'd want to dance with is a completely different question though.

Jack Kreuz's picture

Hey, Tyler, China is not a holdout. Its M2 grew 18% in the last year. The balance sheet of the Chinese central bank as a percentage of total GDP is 62%!

theTribster's picture

China will suffer greatly unless they can convert their growth from an external model to an internal model, I think that is questionable because of the inequities that still exist but that's what they want and are trying to do. They realize what is coming in their three main markets, creating a buffer has been the reason for the balance sheet expansion - that's likely to continue until growth is firmly (and independently) generated internally. Can that happen now or soon? I don't think so, instead they will suffer along with the rest of us but hey, they are used to it.

Post the coming crises we'll have new maps of the world, Europe and Asia will both be "different" than they are now and China will have a lot to do with it. Who knows, maybe America will make the Phillipines a state -:)

LawsofPhysics's picture

Precisely, even the world's "creditors" are printing.

TapperIsTicked's picture

He who prints last, prints fast.