Thinking on Japan: Inflation, bond yields, etc

[Newmoney24]

So Japan is setting course for a large expansion in money supply--
and what would stem from this is inflation (which is their goal, a 2% target).

So what would this do?
well it could shoot up bond prices, but then they could just buy back the shorter term bonds to keep a healthy yield curve.

As for interest due on longer term bonds(like the 30y), they have more money to pay for it now that they've been printing,
and if they ever run low... you guessed it, more printing.


to me --- it appears that this is only going to lead to one thing- hyperinflation ---- massive devaluation of yen (so the move would be to short the yen) -- possible bond market collapse eventually - but the continued devaluation of the yen is much more clear/predictable and sooner coming than that.

What do you guys think?

 

[MarketOwl]

Why would bond yields go up if the BOJ is doing massive bond purchases? Its like the Fed, they have suppressed bond yields with QE. You will get a weaker yen, but not higher bond yields.

 

[hftvol]

I think you misunderstand a thing or two. For the record, 92% of government bonds are held domestically, most in the hands of money managers and pension funds. That is a fact. Thus, BOJ has every interest to keep the yield curve from steepening, particularly through demand in the long-end. They do not want to participate directly by buying their own bonds. Instead they look for ways to drain the system of domestic investors in order to send them searching for yield outside of Japan, resulting in yen sales and foreign currency purchases. This is all a big construct called "hope" but this is as far as BOJ policy going forward is concerned. No gambling in the short-end, the long-end of the curve is all that matters. With it the whole country will either collapse or prosper. Send the long yield up a healthy amount of basis points and most pension accounts and other fixed income bond funds will die a miserable death. That is a fact, the only variable in this game is how can such scenario be averted.

Quote from Newmoney24:

So Japan is setting course for a large expansion in money supply--
and what would stem from this is inflation (which is their goal, a 2% target).

So what would this do?
well it could shoot up bond prices, but then they could just buy back the shorter term bonds to keep a healthy yield curve.

As for interest due on longer term bonds(like the 30y), they have more money to pay for it now that they've been printing,
and if they ever run low... you guessed it, more printing.


to me --- it appears that this is only going to lead to one thing- hyperinflation ---- massive devaluation of yen (so the move would be to short the yen) -- possible bond market collapse eventually - but the continued devaluation of the yen is much more clear/predictable and sooner coming than that.

What do you guys think?

 

[hftvol]

BOJ is not interested in massive bond purchases domestically. The term "quant easing" is a misnomer here. BOJ tries to reflate the economy, keep exchange rate at manageable levels (though they of course deny that). Buying up domestic fixed income securities does not solve all the problems thus they look to either invest abroad directly or drive domestic investors out of Japan in search for enhanced yields.

Quote from MarketOwl:

Why would bond yields go up if the BOJ is doing massive bond purchases? Its like the Fed, they have suppressed bond yields with QE. You will get a weaker yen, but not higher bond yields.