Wednesday, December 26, 2012

BOJ Holdings of JGBs Exceed 100 Trillion Yen for First Time; JPY Drops To 27-Month Low As Abe Front-Running Continues

Japan has engaged in debt monetization and fiscal stimulus for the last two decades, yet it hasn’t worked.  Despite that, BOJ and the US FED are now committed to printing money indefinitely.   We are greatly concerned that this is going to end badly (currency crisis, etc).

From Bloomberg:

The Bank of Japan holdings of the government’s bonds exceeded 100 trillion yen ($1.2 trillion) for the first time, raising the risk that yields will jump on perceptions that it is financing public spending.

The central bank held 104.9 trillion yen of the debt at the end of September, 11.1 percent of all government bonds, a quarterly central bank report showed today in Tokyo. The BOJ said it was the highest on record. Bond holdings by foreign investors rose to a record 9.1 percent.

The BOJ yesterday expanded its asset purchase program for the fifth time this year, with half of the 10 trillion-yen increase to be spent on JGBs. Incoming Prime Minister Shinzo Abe wants more central-bank action to defeat deflation and has pledged fiscal stimulus to stoke growth, even as he’s constrained by the world’s largest public debt.

http://www.bloomberg.com/news/2012-12-21/boj-holdings-of-jgbs-exceed-100-trillion-yen-for-first-time.html

From Zero Hedge:

Slowly but surely, USDJPY has moved back above 85.50 to its highest (weakest JPY) in 27 months as the threat promise of central bank intervention has once again created more front-running. With the market attempting to price in Abe's extravagance, we wonder just how much bang for the buck his 'actions' will create when words are not enough. Will Abe 2.0 be the same as OMT, QE3, and QE4 with the event actually constituting the 'top' or peak impact? Critically though, once Japan actually formalizes what it will do, which will be limited by how much rates can rise on bonds before all government revenue is used to fund cash interest, JPY will spike again, facilitated by the record short-interest (per CoT data). More curious is which Goldman alum will be appointed as the head of the BoJ once Shirakawa's term expires in March. As Bloomberg noted this morning, Japan’s Chief Cabinet Secretary Yoshihide Suga said, during a speech in Tokyo this morning, the "next BoJ Governor will be a person who shares Abe’s views."

USDJPY weakest in 27 months...



and the JGB curve is starting to look a little out of control...



Charts: Bloomberg

http://www.zerohedge.com/news/2012-12-26/jpy-drops-27-month-low-abe-front-running-continues

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