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BOJ and Japanese economy
Posted on 10/25/23 at 10:16 pm
Posted on 10/25/23 at 10:16 pm
Who can explain what is going on there now?
2
Posted on 10/26/23 at 8:45 am to SloaneRanger
quote:
Who can explain what is going on there now?
That's a broad question. What specifically is going on in Japan that has your attention?
Posted on 10/26/23 at 10:51 am to LSURussian
Falling equities market, bond buying in the face of rising rates. Are they having some type of currency crisis?
Posted on 10/26/23 at 11:56 am to SloaneRanger
They can save the bond market and sacrifice the currency or save the currency and sacrifice the bond market. One of those fun paradoxes you get when you decide to be paternalistic over capital markets for as long as they have.
Posted on 10/27/23 at 12:52 pm to SloaneRanger
quote:
Who can explain what is going on there now?
They never recovered from the crash of 89/90 due to the many heroic efforts of the BoJ (see famous quote from Lacy Hunt). Pretty sure both their R/E and equities are still below their 89 peaks. Kind of like how we've had below trend growth since the GFC due to Fed manipulation only on an order of magnitude greater and for over 30 years.
Their debt/gdp is 256%. They are the only modern country on earth (sample size of 50) to have exceeded 130% debt/gdp without an eventual default. They have some unique attributes that have allowed them to defy economic gravity for so long. They have a very high personal savings rate, are net exporters and are obviously extremely homogeneous.
The BoJ now owns more than 50% of all outstanding govt debt. They were able cruise along like this as long as the Fed's rates were also in the gutter. When the Fed raised this started to create issues in both their bond market and their currency. They have been alternating between bond market intervention and currency intervention since the spreads started blowing out.
Everytime the yen goes above 150 they sell treasuries to raise dollars to buy yen to shove it back. They've been in yield curve control since '16 I believe at 25 basis points. Everytime JGB 10s creep above 25 bips they buy whatever they have to to put it back. This blows up their currency so they have to sell more treasuries to support the yen. It's a game of whack a mole.
This year Kuroda, long time BoJ governor, retired and Kazuo Ueda took over. Nearly immediately he raised the ycc target to 50 bips. Once the Fed was firmly over 5 he was unable to keep JGBs at .50 and the yen <150 so he raised it again to a target range of .75-1. That lasted a month or so before the yen hit 150 again.
This is quite significant to us because the BoJ is the largest holder of treasuries on the planet. Ueda has over a trillion he can sell to keep the ponzi alive which of course raises our yields and threatens to blow up Powell's inflation fight because the more Japan sells the harder it is for Janet to find buyers for all her new issuance (while Powell is also trying to sell).
Additionally, the yen carry trade is the largest in the world. Japanese investors borrow yen for 50 bips or whatever and reinvest it abroad at higher rates and collect the spread. The yen/euro carry trade is the only thing keeping Lagarde's head above water right now. If the Japanese start repatriating their money because yields are rising at home she has to turn on the taps.
Japan is a really fascinating mess, every bit as interesting as what's going on in Michigan's film room.
Posted on 10/27/23 at 2:22 pm to Art Blakey
quote:
This is quite significant to us because the BoJ is the largest holder of treasuries on the planet. Ueda has over a trillion he can sell to keep the ponzi alive which of course raises our yields and threatens to blow up Powell's inflation fight because the more Japan sells the harder it is for Janet to find buyers for all her new issuance (while Powell is also trying to sell).
Everything you said is true but this. This is theory. In reality, higher yields will bring buyers in. This crowds out private investment so in a way you are right that it won't help bring down the rate of change in consumer prices that they measure CPI with. But that's an entirely different discussion. Go look at the trends in treasury auctions with indirects.
Posted on 10/27/23 at 5:18 pm to wutangfinancial
quote:
Everything you said is true but this. This is theory. In reality, higher yields will bring buyers in. This crowds out private investment so in a way you are right that it won't help bring down the rate of change in consumer prices that they measure CPI with. But that's an entirely different discussion. Go look at the trends in treasury auctions with indirects.
We shall see. You may be right. I kind of think they need to get oil and dxy down considerably for demand in duration to appreciate enough to keep yields from blowing out to 6+. So far only Libya has threatened an embargo but you have to think some upside volatility is coming. They just eased sanctions on Venezuela for a reason. If oil goes triple digits the bond market will sniff out a big second wave of inflation in a hurry.
Posted on 10/29/23 at 10:18 am to Art Blakey
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