Posted on 02/02/2016 11:55:43 AM PST by Former Proud Canadian
Dear Bank of Japan, how do you spell unintended consequences:
•PLANNED MARCH SALE OF 10-YEAR JAPANESE GOVERNMENT BONDS THROUGH BANKS TO BE CANCELED AMID EXPECTED BELOW-ZERO YIELDS - NIKKEI
•JAPAN'S MINISTRY OF FINANCE IS EXPECTED TO ANNOUNCE WEDNESDAY THE FIRST-EVER DECISION TO CALL OFF SALES OF 10-YEAR JGBS- NIKKEI
Here is the full Nikkei report on this absolute stunner of a development:
The planned March sale of 10-year Japanese government bonds through banks to retail investors, municipalities and others will be canceled amid expected below-zero yields following the Bank of Japan's recent move to adopt negative interest rates.
The Ministry of Finance is expected to announce Wednesday the first-ever decision to call off sales of 10-year JGBs.
The JGBs in question are sold through Japan Post Bank and regional banks in 50,000 yen ($415) units. The holder can cash out this new type of bond ahead of maturity. With the ministry already having suspended sales of two- and five-year instruments, all sales will end. But variable-rate 10-year JGBs for retail investors will still be offered.
(Excerpt) Read more at zerohedge.com ...
If they cannot sell their bonds it means the Bank of Japan has lost control of the bond market AND their ability to set interest rates AND the yen exchange rate. Japan runs a large deficit and if they can't finance it through bond sales, they will have to find the money elsewhere. Either through a large tax increase or outright confiscation of bank deposits.
Thoughts anyone?
Japan is traditionally loathe to play the inflation card, but it may be the least worst solution in this case.
They seem to have painted themselves into a corner.
The logical thing would be to cut government down
to balance the outflow with the incoming. This
also appears to be unpossible.
This could get out of control real fast.
A default is not out of the question.
Like Greece???
IMF intervention, currency controls, banking restrictions could all come very quickly. How much ammunition the IMF has to deal with the third largest economy in the world is anybody's guess.
China should take note, if Japan uses up the IMF's resources, there is not another backstop for them except their gold reserves and the good graces of the US Federal Reserve.
It seems to me, it would be difficult to borrow money (bonds) by telling the loaners, if you loan me money for a period of time, I will pay you back LESS money than you loaned me. - tom
Default is always an option, since most of the bonds are held by Japanese citizens I guess that makes it mostly a domestic matter.
Greece and Cyprus. They are the model.
I think they just discovered that. No offense, but it looks like the guys running the BOJ aren't as smart as you are.
And that’s why they have called off bond auctions. No bids high enough.
Deflation is the natural result from over (hyper?) inflation.
ALERT! Central Bank Desperation Hits Fever Pitch. Proof US Economy IS Slowing. By Gregory Mannarino
https://www.youtube.com/watch?v=WSEmJyOylZc
Ep. 136: BOJ Goes Negative, 2 Down 1 To Go !
by Peter Schiff
https://www.youtube.com/watch?v=gBgcFrSYC3E
Seppuku...
As interest rates turn negative around the world, the Federal Reserve is asking banks to consider the possibility of the same happening in the U.S.
In its annual stress test for 2016, the Fed said it will assess the resilience of big banks to a number of possible situations, including one where the rate on the three-month U.S. Treasury bill stays below zero for a prolonged period.
It seems that that game is now played out.
I think it works like this:
1) The central bank uses a lot of weapons to defeat deflation.
2) They fail and the result is ZIPR, NIRP, and finally an inability to sell their bonds at these low rates. However they have sewn the seeds of inflation through QE, and inflating the money supply and stock prices.
3) Finally they defeat deflation, one way or another but the result inflation and possible hyperinflation are worse than the disease of deflation they tried to cure in the first place.
Yup.
National debt of 8.9 trillion dollars, somebody better figure out a way to float a bond issue pretty damn quick.
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