Saturday, October 05, 2013

Duct Tape And Japanese Bonds

I'm working on cars and preparing for a men's retreat this weekend, so I didn't have time to do the research I wanted to make this post more than a couple of notes.

First, according to Bloomberg, Japan's got $250B of government bonds rolling over every month this year. That's huge. If, as some have suggested, Japanese investors will start fleeing Japan by simply not renewing maturing bonds, that's going to be a lot of Yen for the BOJ to print so it can buy them. I don't have the figures for the current BOJ printing, but it's nowhere near $250B a month.

Meanwhile, the BOJ, to stem volatility, is increasing the frequency of its bond purchases. Dig this.
TOKYO—The Bank of Japan plans to increase the number of days per month that it buys domestic sovereign debt and reduce the amount of each offer, in its latest attempt to mitigate market turbulence...the bank would release the details of future purchasing operations on Thursday and would plan to make purchases on 10 or more days in June, up from eight in May.
So if the BOJ leaves the market for as much as 3 days, the place starts getting jittery. (~21 working days a month, 8 purchase days, works out to roughly one BOJ purchase day every 3.) That's insane. It's like kids who start ripping the house apart if mom goes next door for 15 minutes to chat with the neighbor. Pretty soon mom can only be gone for 10 minutes and then 5 and then she's got to be there all the time and then she's duct-taping the kids to their chairs even while she's there.

I'm not sure I'm looking forward to seeing the population of Japan duct-taped to chairs.

Update: The BOJ is purchasing around $75B worth of government bonds every month which works out to be about a third of the total supply.

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