USDJPY, JGBs Tumble After Bank Of Japan 'Tapers' Bond-Buying

USDJPY and JGB Futures are tumbling after the Bank of Japan 'tapers' its purchasing of longer-dated bonds.

The JPY has strengthened the most since January 2 against the USD:

We previously noted the fact that the QE party was over in Japan as its balance sheet declined for the first time since 2012: under “QQE” – so huge that the BOJ called it Qualitative and Quantitative Easing to distinguish it from mere “QE” as practiced by the Fed at the time – the BOJ has been buying Japanese Government Bonds (JGBs), corporate bonds, Japanese REITs, and equity ETFs, leading to astounding month-end to month-end surges in the balance sheet. But as we showed over the weekend, now the “QQE Unwind” has commenced. Note the trend over the past 12 months and the first dip (red):

And today, the BOJ just announced it trimmed the size of its asset purchases some more, specifically by 10BN yen each in the 10-25 year segment and the more-than-25-years bucket.

Here’s a comparison with previous operations:

  • 190b yen of 10-25 year bonds vs 200b on Dec. 28
  • 80b yen of bonds maturing in over 25 years vs 90b on Dec. 28

As a result, the JGB yield curve steepened modestly, with the 10-year yield rising 1bp to 0.065% while the 30-year is up 1.5bps to 0.830%.

As Wolf Richter concluded previously, The BOJ has used QQE as an internationally accepted pretext to bring Japan’s public debt under control by effectively removing much of it from the market in order to prevent a Greek-like debt crisis. And so far it has worked.

Japan’s national debt reached 250% of GDP at the end of 2016, by far the highest in the world. Between the JGB holdings by the BOJ and by state-owned institutions, such as the Government Pension and Investment Fund, Japanese authorities now control the majority of Japan’s national debt, and there won’t be a debt crisis – though it could trigger other crises. And it appears that the BOJ decided that this might be enough control. Hence the end of QQE.... at least until the market wakes up and realizes the yet another central bank pillar of support is slowly being pulled out from beneath it and risk assets finally sell off.


Dragon HAwk Mon, 01/08/2018 - 20:56 Permalink

Funny thing Bonds,  you have this ton of money so you give it to somebody else and they park it on a shelf somewhere. and for ten years they let you pretend you are rich.

philipat mkkby Tue, 01/09/2018 - 00:14 Permalink

Despite this long-standing inverse correlation between USD/JPY and PM prices, Gold has not even been allowed to get back into the green on the overnight Asian session. That isn't good and I think it indicates a monkey-hammering is imminent. They need to get the PM's down before the announcement from China next week (Jan 18) regarding the Oil Futures contract in CNY so that Gold will respond upwards from a lower base than now. It's significant that in this latest cycle, Gold hasn't been allowed to get back to anywhere near its 2017 high, so a kind of "One step forwards, two steps backward" pattern, which doesn't bode well IMHO. They want you to buy cryptos NOT Gold. Get it??

In reply to by mkkby

Herdee Mon, 01/08/2018 - 21:01 Permalink

There's a reason that they're all tightening into weakness. They'll need room to maneuver for the downside. Everyone talks about negative interest rates but they ain't seen nothin' yet.

Sizzurp Tue, 01/09/2018 - 00:42 Permalink

This is the BOJ testing the waters, and now confirming that their worst fears are all true.  They are totally FUBAR.  The next question they will be asking themselves is do they really want to go there today?  Nahh, Start the QE again boyz.