by Kurt Kallaus
Financial Sense
If you want the bank to hold your money in Japan, it will cost you. In fact, any bond an investor buys up to a 10-year duration carries a negative interest rate. Japan has been the most aggressive first world country on the planet printing currency out of thin air as they engage in quantitative easing (QE). Using their digital printing press and decimal point dexterity, the Bank of Japan (BOJ) has been creating $733 Billion (80 Trillion Yen) annually to buy Japanese bonds and stocks. Relative to the size of their economy, such a rapacious appetite would equate to almost $2.9 Trillion annually in the US or about triple our peak rate of QE. The BOJ has purchased Japanese Government Bonds (JGB’s) at twice the rate of issuance. Running out of things to buy with this free money, they have now become a top ten shareholder in 90% of all stocks in the Nikkei 225 Stock Index. With limited ability to keep buying assets combined with a rally in Oil, the Yen has begun to appreciate sharply since January. At 250% debt to GDP, Japan is in so deep now that there is no chance they will grow fast enough to pay down this unsustainable debt burden. They are all in! Japan and the world are crossing their fingers that the old global rates of consumption and inflation will return to the halcyon days of the 1990’s. More likely is a panic run on the currency as the BOJ will continue using QE and currency intervention until either their economy accelerates or the markets finally lose confidence and moves to hard assets. For now, the game continues and as long as Oil stops rallying, the aggressive QE should send the Yen lower once again.