First, Europe infamously shifted to a NIRP and now Japan has begun NIRP monetization. As WSJ reports, Tuesday marked another milestone in the topsy-turvy world of monetary easing in Japan: The Bank of Japan bought short-term Japanese government debt at a negative yield for the first time. In the understatement of the decade, one Japanese bank strategist noted, "The BOJ probably didn't expect this would happen, and T-bill rates staying negative should be a cause of concern for them." The BoJ's decision to scoop up these negative-yielding bills appears to confirm they will meet the QQE-buying demands no matter what the cost (to the Japanese people). The bottom line, the Bank of Japan is now implicitly issuing debt to the Japanese Treasury.
The BOJ scooped up some of the three-month No. 477 Treasury bill, which has traded at a negative yield for the past two trading days amid strong demand, the market participants said.
Traders said the bank wanted to show the market that it would meet its asset purchase goals–literally at whatever the cost.
Market participants say the bank probably didn’t foresee buying Japanese debt at negative yields. But the European Central Bank’s easing has created demand for short-term Japanese debt from European investors, to the extent that interest rates have turned negative.
“The BOJ probably didn’t expect this would happen, and T-bill rates staying negative should be a cause of concern for them,” said Shogo Fujita, chief Japan bond strategist at Merrill Lynch Japan Securities Co.
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So, in summary, normally, people who buy debt expect to get their money back plus some interest. Negative yield means the buyer gets back less than he or she puts in.
In other words, the Bank of Japan is now ISSUING debt TO the Japanese Treasury.