Holy Fukushima! Tora! Tora! Tora!
Kamikaze Abe’s bonsai bond dive should scare the living sushi out of you!
1) Despite the BOJ massive new QE program JGB rates are actually moving up not down!
2) Japanese Banks, Pension fund and Insurance companies are unloading JGBs in size as they are anticipating the new 2% inflation target! Should the banks hold, they would incur heavy losses, as rates move up they could lose up to 30% of their tier 1 reserves!
3) Since all these financial institutions are unloading their nation’s treasury bond holdings en masse, the BOJ will effectively be the only buyer left in the JGB market! Shortly they will be buying 100% of the issuance!
4) The BOJ is selling YEN to buy JGBs, rapidly devaluing their currency with the intent to reflate and help revive the economy via their export sector. Unfortunately for them, they currently run trade deficits and not surpluses, thus they will be causing even further inflationary pressure as imports increase in price!
5) If they reduce the buying of JGBs to stabilize the YENs devaluation, JGB yields will sharply move up!
6) Their debt to GDP ratio is running close to 250%. Should JGB rates move up over 2% they can not fund their Government’s obligations!
They have backed themselves into the mother of all corners! They are effectively insolvent!
Hello systemic meltdown! The bug searching for a windshield moment is upon us!
Splatt!
BDI SOH’s Idiot Savant
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