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Bond-buying in focus as Bank of Japan decides policy

16 Comments
By Kyoko HASEGAWA

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So the BOJ has scrapped both its negative rate policy and yield curve control policy, and now it will likely start lightening its balance sheet.

What?!? A dozen or so vociferous JT posters (not me) has been arguing over the last few years that the BOJ was “stuck between a rock and hard place,” unable to get out of the situation it got itself into without triggering a meltdown, or something like that. I guess they were wrong. LOL.

 

 “the bank holds more than half the value of all Japanese Government Bonds (JGB)”

 

This is why all the hand-wringing over Japan’s national debt is ridiculous. Most of the “debt” is in the public sector.

-7 ( +0 / -7 )

And is the situation getting better for Japan population ?

Since BOJ is doing it at a slug's pace, the economic situation is degrading slowly but surely, with he yen still depreciating.

The BOJ is selling billions of dollars to protect yen. That has a cost.

For how long with a declining demography and soaring social costs ?

6 ( +6 / -0 )

@JeffLee 

This is why all the hand-wringing over Japan’s national debt is ridiculous. Most of the “debt” is in the public sector.

The BOJ at this stage has two choices:

1. Continue to cap yield at a level below the market level. The consequence of this approach includes the current problem of persistent JPY depreciation, imported inflation, and weak consumption. 2. Let the yield move to a more natural level to void problem of choice 1. However, it means higher interest payments when the government refinances its debt, leaving less money for important expenditures like education, energy transition…etc and probably higher tax.

Currency depreciation and imported inflation are the limits of perpetually growing public debt, regardless of who owns this debt or the currency in which it is denominated.

2 ( +3 / -1 )

So the BOJ has scrapped both its negative rate policy and yield curve control policy, and now it will likely start lightening its balance sheet.

What?!? A dozen or so vociferous JT posters (not me) has been arguing over the last few years that the BOJ was “stuck between a rock and hard place,” unable to get out of the situation it got itself into without triggering a meltdown, or something like that. I guess they were wrong. LOL.

Just because they might be doing that doesn't mean that it's an ideal solution. What ever they choose to do the road will be bumpy, just have to decide which demographic will take the biggest hit.

2 ( +3 / -1 )

It means higher interest payments when the government refinances its debt,

  

So who receives those lucrative payments?

leaving less money for important expenditures like education, energy transition

Answer to my previous question: public funds to a large extent, which fund such things such as…education and energy transition.

Ever wonder why Japan can run a humongous “debt” and never default? That’s a big reason. The money goes round and round, rather than in and out.

-3 ( +0 / -3 )

"The BOJ wants to see demand-driven inflation of two percent, which has been met every month since April 2022."

So it has been met every month for the past 2 years but the BOJ oyaji are still waiting to "see it"?

3 ( +3 / -0 )

So it has been met every month for the past 2 years but the BOJ oyaji are still waiting to "see it"?

I imagine they are watching the spike in bankruptcies from the minor rise in interest rates.

5 ( +5 / -0 )

unable to get out of the situation it got itself into without triggering a meltdown, or something like that. I guess they were wrong. 

Last time I looked, the BOJ is still owning a mega-tonne of bonds.

Talking about normalizing policy is not the same as having normal policy.

When the BOJ is conducting normal policy and nothing much happened along the way, is when you can pull out your happy thinking. Not now.

(even then if the yen is like 360 to the us dollar some will refuse to acknowledge it as a bad outcome…)

If one just listens to the BOJ itself, one knows that it is very early days.

And the government needs to either slash spending or find some other willing party to finance the ongoing deficit spending.

1 ( +2 / -1 )

If one just listens to the BOJ itself, one knows that it is very early days.

Wouldn't you as a business owner rather the BoJ does it slowly and in a transparent way?

Last time I looked, the BOJ is still owning a mega-tonne of bonds.

Yes, but Japan is also the biggest holder of US debt...

https://www.statista.com/chart/31941/largest-foreign-holders-of-us-treasury-bonds/

Imagine if just a small amount of it was offloaded, that would shift the yen/dollar balance towards the yen would it not?

-3 ( +1 / -4 )

I'm totally on board with the BoJ, there has to be evidence of sustainable inflation before major move. Else, Japan risks a return to deflation and doldrum. The market (ie Japanese corporates flush with cash) will decide when to return capital to Japan anyway, they won't if they think Japan is going to return to deflation.

-3 ( +1 / -4 )

What's wrong with deflation? Japan getting more expensive for foreign tourists? Imports are getting cheaper, meaning cheaper price of oil, gas, coal, wood, etc?

Yen getting stronger, or the welfare of its citizen is not priority for this government. The priority is for the mamuth companiea in Japan to get bigger profits due to weak Yen.

-1 ( +3 / -4 )

What's wrong with deflation?

Nothing wrong under certain settings. I actually think the decades long deflation was a good reset for Japan, and it improved the lives of the average Japanese A LOT. High standard of living, low cost of living, secure jobs etc., though it can't last forever.

Right now, Japan at the trough of a 3 decades long investment cycle and Japan has to emerge from it. Deflation delays consumption, ie why buy now when I can buy cheaper later, without consumption it's not a purring economy that utilises capital to invest to better lives of citizens.

-1 ( +2 / -3 )

Wouldn't you as a business owner rather the BoJ does it slowly and in a transparent way?

Do what?

Inflation has been above their own target, whereas I preferred price stability.

I hope they can at least achieve their stated target, but I’m skeptical that they will.

Yes, but Japan is also the biggest holder of US debt...

As a resident of Japan, I hold some of that debt (being an investor)

But that hasn’t much to do with the BOJ’s monetary policy

Imagine if just a small amount of it was offloaded, that would shift the yen/dollar balance towards the yen would it not?

If my US debt goes up in value, I might sell some and just buy more US stocks.

Why would one assume that I might sell dollars and buy yen, given the monetary mess the BoJ is in?

1 ( +1 / -0 )

What's wrong with deflation?

Amen.

I don’t think Japan even had deflation.

Over about 3.5 decades, japans prices rose by 0,5%.

There were only 12 years when genera prices fell. The other 20 odd years were slightly up.

It was actually general price stability.

That Japan was in the doldrums was not because of the price stability, but other issues - in my humble opinion.

1 ( +1 / -0 )

The situation won't change much. If Japan cashes out all of its external assets in NIIP, it won't pay back the debts that will balloon if the interest rates rise. Those assets are largely private, so the private owners won't even care about Japan sinking. Additionally, I really hate the arguments of Japan owning its own debts because Weimar Germany thought that it was a good thing. Japan defaults or erases its own debts will mean that Japanese people can kiss their credibility goodbye for good. No international institutions and foreign financiers will ever lend Japan any money. Meanwhile, all Japanese corporations will leave the country but they will suffer as the costs of borrowing will rise due to the death of Japanese credit scores.

0 ( +1 / -1 )

Japan does have it's "floating currency".... sure the BoJ intervenes "Politically motivated", to purchase it, though what if that stopped ?

0 ( +0 / -0 )

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