business

BOJ's total assets exceed country's GDP for first time

29 Comments
By Hideyuki Sano and Tomo Uetake

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29 Comments
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@Disillusioned: wrong, the US public debt is the biggest one in the world. Maybe you are speaking about the debt to GDP ratio.

4 ( +5 / -1 )

Bintaro: The ultra-short, super generalising version is this (with back-story):

1: Japan’s ‘bubble’ burst in the mid 1990s; lots of people had borrowed a ton of money against asset _____, thinking its value would rise. The subsequent drop in asset prices left a LOT of people/firms/banks with big debts and assets worth a fraction of their earlier value - and loans much greater.

2: To balance their collective books, a common response was to spend less, save more, and try to pay back the debts. Problem here is that when people, as a whole, spend less, the economy of the day suffers. Less spending - companies reduce prices to encourage consumption - deflation. People see that prices are falling, postpone consumption decisions - negative feedback loop.

3: To pick up the slack/stimulate prices, JP governemt steps in and tries to ‘spend its way out of the problem’, but needs someone to bankroll the whole thing.

4: Bank of Japan buys government bonds - injects money into economy. More money floating around also causes interest rates to fall - usually encourages people to spend too.

5: People don’t respond as much as we expected (demand side response not responsive to supply side stimuli). Rinse and repeat process of Gov. spending & BOJ bankrolling.

6*: BOJ becomes bigger fish in a given pond (Government Bond market) - pushes out private businesses who would otherwise conduct operations here. Problem is this: BOJ is responsible for printing currency, and also is a major buyer of government debt. This is like holding an inflating balloon in one hand, needle in the other. If it gets to the point where you have to raise interest rates because the risks of the underlying asset are increasing (read, the government has borrowed so much money the risk of default starts to play on your nerves), and you yourself happen to have a gigantic pile of those assets, that then causes the market value of the asset to fall greatly. Alternatively, if you decide that holding on to such a massive balloon of assets isn’t in your best interest (bad pun, sorry), even the matter of getting rid of them makes other people think, ‘wait a minute, what’s wrong with these bonds...’. Short versions: damned if you do, damned if you don’t.

Conclusion: BOJ getting saturation point vis-a-vis government bonds and their stimulating effect on the economy. I’m leaving out a lot of nuance and detail, however.

Source: Muh PhD. In economics.

4 ( +5 / -1 )

Insane wanye.

Are you being sarcastic because this article is pretty gloomy. Not sure how Japan will survive the next crash.

3 ( +5 / -2 )

How the yen continues to be so strong is a mystery.  ay some stage all of the debt will need to be monetized and that will lead to massive devaluation.  As for selling off their assets, just not possible without causing an unholy market crash, both debt and equity.  Many say "they owe it to themselves" but not quite true.  they owe it to the ageing population who are eventually going to want to spend their savings.

As with QE and ridiculous overborrowing and spending, Japan is the canary in  the coalmine for whether it is possible to manage a way out of this without disastrous consequences.

and yes,, when next financial slump comes, they will be up the Sumida creek without a paddle.

3 ( +5 / -2 )

One should note that Japan also has the world's largest public debt by more than double the next country, the US. Perhaps the BOJ should sell off its assets and pay back the public debt.

2 ( +5 / -3 )

It is hard for me to understand the implication of this.

2 ( +2 / -0 )

Anyway it's better that the public debt is domestically owned like in Japan case, than in foreigners hands, that's for sure.

2 ( +3 / -1 )

I don't get it. Can someone explain ?

2 ( +2 / -0 )

It's just electronic blips written into various columns of a spreadsheet. 

Can I get some of those electronic blips please?

It cracks me up that governments print money like there is no tomorrow, but the average citizen? go live on the streets if you get in trouble.

2 ( +3 / -1 )

The BOJ has a mountain of under performing assets-what could go wrong?

1 ( +1 / -0 )

JeffLee: my post should have read "...getting close to saturation point". It's not necessarily doom-saying, just the acknowledgement that the effectiveness of using government bonds for stimulatory purposes vis-a-vis the underlying risk of being the asset's major buyer is not as not as it once was. That's one of the reasons why the BOJ is trying other methods, aiming to reduce bond purchases, and diversify further into other assets. Incidentally, Japan Post - another big buyer of government debt - is also trying to diversify its portfolio away from government bonds.

In any case, the arguments I'm putting forward are highly reduced - so there's always the risk of oversimplifying.

Cheers.

1 ( +1 / -0 )

These "assets" are almost entirely Japanese government bonds. What happens when the government is unable to pay them back? Does the BOJ go bankrupt? Kuroda is a fool for investing in this junk.

1 ( +1 / -0 )

Maybe it's time the doomsayers started to question their worldview.

Well, if Japan can't capitalize well of the back of all the slave/free labor they have conscripted their working class to do since the war, there would be something really wrong!

That said, another article today mentioned that the economy is shrinking (as opposed to fudging numbers to indicate otherwise), so who knows? It's certainly not transparent...

1 ( +2 / -1 )

One should note that Japan also has the world's largest public debt by more than double the next country

yes but they owe it to themselves

0 ( +2 / -2 )

Yeah. They owe it to themselves. Cancel it on a holiday weekend, and no only will nobody - those who do would approve.

0 ( +0 / -0 )

I don't get it. Can someone explain 

Sorry - on my tablet before so miss-typed. A government borrows money from either foreign currencies, in which case the debt must be repaid in the currency from which it originated, or in their own currency, which means the government can simply purchase the debt and write it off when repayment time comes. This action is inflationary as it increases the amount of money in the economy, but then, Japan wants more inflation. Just buy it and write it off - but also reform so that you don't have to do this again. There is a limit.

0 ( +2 / -2 )

@Laguna = There is a Limit ?? What limit ?

0 ( +0 / -0 )

"The BOJ's assets started ballooning when Governor Haruhiko Kuroda took the helm at the central bank in early 2013, vowing that such steps would boost Japan's inflation to two percent in two years" If they wanted inflation that badly they should employ President of Turkey, Erdogan for it and see it skyrocket in a year to 40 percent.

0 ( +1 / -1 )

It cracks me up that governments print money like there is no tomorrow, but the average citizen? go live on the streets if you get in trouble.

It's the same with corporations and rich people. Corporations get bail outs. And the rich hate to see someone become not rich (it scares the hell out of them), and will always give an assist to friends who need it.

The rest of us have to fend for ourselves.

0 ( +0 / -0 )

I don't get it. Can someone explain ?

Me too. What are the nature of these assets? Who did they buy them from?

0 ( +0 / -0 )

 There is a Limit ?? What limit ?

That depends on the economic growth and saving rates.

0 ( +0 / -0 )

BOJ getting saturation point....

That's what people said 5 years ago. And then came negative interest rates, and then came yield curve control, and so on, coinciding with the second longest economic growth streak in modern Japan's history. At every turn, the BOJ and its QQE program confound and confuse the Japan doomsayers. .

Maybe it's time the doomsayers started to question their worldview.

0 ( +0 / -0 )

What happens when the government is unable to pay them back? 

They are denomiated in a currency the government has the sole authority to issue, and that happens to be the world's leading safe haven currency. That's one reason why every single warning over japan's fiscal overhang has been wrong. People, including the ones who should know better, don't get it.

0 ( +0 / -0 )

Quantitative easing isn't unique to Japan. The FED and also the ECB made the same since the Lehman Brothers disaster. The FED is trying to raise the interest rates but Trump is against it, since normalizing the situation isn't so easy without any consequences after years of printing money and very low interest rates.

-1 ( +1 / -2 )

It's just electronic blips written into various columns of a spreadsheet. The payment on the bonds' coupons, for instances, goes into the coffers of the Finance Ministry. Recorded as debt but not really debt.

How the yen continues to be so strong is a mystery. 

Not to me, it isn't. It's the world's leading safe haven currency. Global investors buy it when they want to park their money into a safe asset.

-2 ( +0 / -2 )

Kaerimashita:

How the yen continues to be so strong is a mystery. 

It's because Yen is not like any other currencies. Normally, when you print your currency, the price goes down. But not Yen. The reason is that Yen is considered "safe haven" so that many investors buy Yens every time when stock markets get rattled due to political or economic troubles in the world.

Japanese currency is regarded as "safe haven" because the Japanese society is considered very stable. Japan is largely invisible in international military conflicts. Internal political upheavals are virtually none. Social changes are moderate and evolutionary rather than revolutionary. They do not like conflicts or confrontations. They rather say "shikataganai" (cannot be helped) instead of get angry. They simply keep going with little improvements here and there. That's good and bad. But the trait, in my opinion, established their currency as "safe haven."

The implication is really significant: Japanese Yen has properties of currency and gold. It's not just a mechanism for exchange; it is itself a sellable product that has steady demand in the world of uncertainty. Unlike other currencies, printing Yens (like mining gold) literary makes money due to the demand.

-2 ( +0 / -2 )

BOJ always tells good side of a story.

-2 ( +3 / -5 )

Hey it’s a good thing, not a negative at all.

What do you want? The worlds lowest income and savings? You be starvin marvin

-2 ( +1 / -3 )

Japan has perfected socialism !!

For the first time in recorded history a country has thrived under socialism. Hopefully, other nations will flock to Japan to learn the keys to success !!

They have made it this far and NOTHING can stop them !!

It WORKS !!

-9 ( +1 / -10 )

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