The Bank of Japan Loses Control
Business
Here’s why central banks can’t keep fighting gravity.
For decades, the Bank of Japan (BoJ) has been debasing its national currency like there’s no tomorrow.
Yes, the money printer has been running white-hot!
In fact, the Japanese Yen fell 30% against the US dollar this year alone, and the BoJ balance sheet has ballooned to 126% of GDP.
With currency getting printed at this rate, you might normally expect soaring prices… But that hasn’t happened.
Domestic prices have been surprisingly stable. Leaving economists to puzzle out whether the endless money printing would ever push the Yen past its tipping point and into inflationary fires.
The answer to this riddle lies in Japan’s incredibly shrinking demographics, which have offset much of the money printing.
As people age out of the workforce and into hospices, this means less demand for new houses, cars, groceries, etc.
Pew Research shows that more diapers are now being produced for adults than for babies!
That translates into much lower demand.
Yes, demographic decline is a powerful deflationary force, pushing prices down and giving central banks a lot more leeway to print without causing prices to jump.
And the BoJ has been taking full advantage – its mantra is to print no matter what. That includes locking 10yr yields at 0.25%.
This is full blown yield curve control!
And as a result, means the central bank will override the market by endlessly printing Yen to buy every single government bond out there that rises above 0.25%.
Well, it looks like they’ve lost that battle.
Despite having the advantage of an infinite money printer, the BoJ was not able to escape market forces.
In a shock decision last week, the BoJ became forced to pivot and raise the yield ceiling to 0.5%.
The fear was that keeping yields suppressed would prove too costly and that even Japan’s weak demographics would no longer be able to offset the currency debasement.
The Nikkei promptly sank 2.5% while the Yen surged 3.4%.
The Bank of Japan (BoJ) was the last major holdout in a global monetary tightening shift (not including China).
The entire monetary world order is now trying to rein in inflation (even as fiscal spending rages on.)
They’re playing a dangerous game.
If they fail to regain credibility during this brief pause, they may lose everything when the money printers inevitably get turned on again.
That’s how crack-up booms happen.
Which major fiat currency will be the first to go?
After all, they’re just the prettiest horses at the glue factory – eventually, they’re all getting melted down.
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The Bank of Japan Loses Control 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.
Passionate about finding best-in-class financial solutions for FOs, MFOs, UHNWI investors. And institutional clients, including IFAs, asset managers, and licensed broker-dealers.
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. Help clients gain a foothold in the digital asset space. In addition, provide education with a LinkedIn following of 4K and over 1.5M content views.
