Tuesday, February 02, 2016

The Beatings Will Continue Until Japanese Banks Hand Out Cash To Donkeys

Dig this.
TOKYO—Japanese bank shares fell sharply Monday despite a rise in the overall market, reflecting how the Bank of Japan’s move to negative interest rates has put the nation’s commercial bankers in a tough spot.

Many banks have more cash than they know what to do with. Last Friday’s surprise interest-rate move means that commercial banks will lose money on some of their deposits at the central bank. Meanwhile, yields are plunging on Japanese government bonds, another popular place for banks to put their money. The interest rate on the benchmark 10-year government bond fell at one point Monday to a record low of 0.05%.

The Bank of Japan’s move is intended to spur spending and demand for loans, but industry observers are skeptical that banks can find more borrowers.
The BoJ has been printing Yen like there's no tomorrow and handing it to the banks. The banks can't find anything to invest in other than magic beans, perpetual energy and self-aware sex robots, so they were taking their money and stuffing it back into the BoJ and government bonds. Those investments didn't yield much, but they were practically risk-free, unlike green energy boondoggles. Now, thanks to the BoJ, those investments will actually produce losses.

What to do with all those Yen?

Since the Japanese population is falling, there's not much new business to be had in Japan. It looks like they're going to have to start investing outside of the country if they want to avoid more losses. I'm not sure that's what the Japanese government and the BoJ had in mind. In effect, their policies will become stimulus measures for other countries.

On the other hand, they could always invest in new Pachinko parlors.

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