Bank Of Japan Fights Gravity : Why Is Bank Of Japan Buying Bonds?

Bank Of Japan Fights Gravity : Why Is Bank Of Japan Buying Bonds?


Bank of Japan has nothing to show for $150B spent in 3 weeks.

The world’s 3rd largest bond market is far from well.

The solution?

$70B every single month.

That’s how much the Bank of Japan (BoJ) committed to spending on Japan Government Bonds (JGB) back in December.

It’s called yield curve control, and is a particularly desperate, brute-force measure for central banks to regain command.

For the longest time, the BoJ would go out to market and buy every single JGB that was trading above 0.25% yield.

That’s their way of suppressing market forces that require better returns on government bonds, pushing yields higher and making debt issuance more expensive.

In other words, yield curve control allows the government to keep financing itself with cheap debt.

But even with the advantage of an infinite money printer, the BoJ couldn’t maintain a 0.25% yield.

It simply became unsustainable.

And so, on Dec 20th the BoJ shock pivoted and adjusted the cap to 0.5%, letting yields explode upwards.

Now, the BoJ can barely even hang on to this new level.

Yesterday alone the BoJ blew $35B, i.e. half of its estimated monthly “budget” in a single day.

Then today, it burned through another $25B in the 5-10y tenors.

All-in-all, the BoJ has spent $150B over the last 3 weeks.

And yet, the yield keeps pushing above 0.5% – clearly wanting to rocket to 1%, where JGB 10y swaps are already trading, and then higher from there.

The BoJ can’t allow that to happen as the interest alone on the outstanding debt would become insurmountable.

Now, the BoJ must choose between losing control of the bond market and sacrificing the currency.

The answer is clear.

As always, fiat money will trend to its inherent value of 0.

JPY already fell 30% against the USD this year alone, and the BoJ balance sheet has ballooned to 126% of GDP as it feverishly debases the currency and loads up on government debt.

This is the price for decades of debt fueled spending, which served to paper over declining demographics and slowing growth.

Common wisdom says that Japan is about 10 years ahead of the West’s age curve. Is this a glimpse of what’s to come?

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Written by Andrew Axelrod

Relationship Manager with over a half-decade experience in managing key institutional client relationships in North America, continental Europe, and Asia (ex-Japan) markets with a +95% retention rate.

Moreover, passionate about finding best-in-class financial solutions for FOs, MFOs, UHNWI investors, and institutional clients, including IFAs, asset managers, and licensed broker-dealers.

Furthermore, in today’s world, those best-in-class solutions are in crypto.

Transitioned from TradFi to crypto in 2021, joining Coinbase’s new Prime Broker desk for institutional clients. In addition, help clients gain a foothold in the digital asset space and provide education with a LinkedIn following of 4K and over 1.5M content views.
Bank Of Japan Fights Gravity : Why Is Bank Of Japan Buying Bonds?