Bank of Japan / Japan Public Pension Fund

I thought this piece below was interesting and I hadn’t really understood the magnitude of what happened last week. Since 2008 the Federal Reserve has increased treasury holdings from $800B to $2B while also purchasing $1.2B of MBS. I count a total of $2.4T, over 5 years. Japan’s announcement was for essentially $1 Trillion in asset purchases and we’ll see what the ECB does. So this announcement is as large as we’ve seen since the '08 crisis.

“The BoJ will now increase its balance sheet by 15 percent of GDP per annum, and will extend the average duration of its bond purchases from 7 years to 10 years. This is an open ended programme of bond purchases that in dollar terms is about 70 percent as large as the peak rate of bond purchases under QE3 in the US.”

“In a parallel announcement, the government pension fund (GPIF) said it would reduce its domestic bond holdings from 60 percent of its portfolio to 35 percent, while increasing its overall equity holdings from 24 per cent to 50 percent.”

“Some of this has happened already, but this change will increase the purchase of Japanese equities by a further $90 billion, and the purchase of non Japanese equities by $110 billion, all effectively financed by sales of $240 billion of bonds to the BoJ, and therefore ultimately financed by central bank creation of reserves. Although Governor Kuroda said that these decisions are not directly connected, the combined effect is to introduce a new type of QE on an enormous scale.”

is there any way that this can end without hyperinflation, or complete failure and extreme deflation? i mean, once the BoJ and GPIF own securities that are worth well beyond Japan’s equity market capitalization, isn’t this a problem? i’m still very confused by the whole central bank owning securities math but i’d imagine the BoJ owning as much securities as the Fed and ECB despite managing economies that are 1/3 to 1/4 of the size has to get concerning at some point.

also, if these desperate moves to boost asset prices and inflation are unsuccessful and Abe is ousted in the next election, resulting in a major shift in policy towards fiscal prudence, will this be the deflationary trigger that sends the world in a tailspin?

Abe is going to be a hero or a villan, that’s for sure. I’m still not sure why anyone is purchasing Japanese 10 year bonds yielding 0.4%, the risk/reward there doesn’t make sense.

based on the economy’s reaction to Abenomics thus far, i would guess there is a large constituency betting on villian and are willing to accept the 0.4% to make that bet. i’m with you for the most part though, 0.4% is useless unless you’re a company/pension trying to match liabilities (and maybe that is all it is).

You know, there seems to be a global obsession with “boosting”, “stimulating”, and “growing”. Is it a global growth arms race? The planet is a finite space, where exactly will they keep growing to? At what point do developed nations start planning a stable, sustainable, zero-growth economy? These are the things I wonder sometimes.

Shit, there’s a lot of questionable math out there, and questionable economic ideas, but desperation to keep the “growth” happening. Who knows what it all means…

^ i think you nailed it. why would japan want to see growth and inflation if their population is supposed to shrink by 65% in the next 100 years. i’m not an economics major but i think it’s impossible to have growth during a period of rapid population decline, unless you had productivity gains that were explosive (which will not happen).

their only saving grace would be mass immigration but since most non-Japanese don’t know nor have an interest in learning the Japanese language, this would be a very difficult process to start. you’d basically have to become a dual language country (Japanese/English) overnight in hopes of stealing some of the immigration flow into North America and the UK.

bottom line: i’m very confused by Japanese policy. opting for inflation MUST come with a permanent spike in the birth rate to about 2x current levels in order to make it work as it has in the past.

the same could probably be said about most of Europe ex-UK. why would they want growth, and why do they think they can achieve growth, when in the long-term, most economies will see population decline?

It will be interesting when the world’s population tops out and the idea of growth changes. There are a lot of concepts, both financial and otherwise, that rely on a certain level of growth to produce results. I don’t think we are close to that population level however, so I think some level of growth is to be expected. Obviously, looking at individual countries is different.

Japan isn’t very welcoming to immigrants either.

Naive question.

Why don’t they f*ck more? It’s not very hard to increase your population. Ask India and the Middle East.

^ Because no developed nation f*cks in order to reproduce. That’s why they are open to immigration.

Yeah, I wonder sometimes if the US/JP are already there; population more or less peaked, both genders working, consumption-frenzy already at max, and now playing games (credit cards, corp leverage, gov printing, interest rates, etc) trying to make the chart go “up and to the right”. Europe too, maybe it’s just over?

But then again, in 10K years the world’s population has yet to “top out”, so who knows…

Wait are you saying you don’t understand why Abe is buying Japanese bonds? Because, that is who is buying them at a clip of abotu 70% of purchases. It’s tough to underestimate that level of support from a supply/demand perspective.

JP is clearly there already. the US and much of Europe is approaching no organic population growth territory but should be okay so long as immigration continues at its current pace (i.e. they effectively “steal” population growth from other places like Africa, India and S. America). JP has a terrible immigration policy and seems unwilling to increase immigration though this may be the only thing that prevents a complete collapse of their economy.

South Koreas fertility rate is below Japan’s (1.32 vs 1.41). US is still at 1.97, using UN numbers. Japan GDP per person is $37k, SK is $32k and the US is $53k on a PPP basis. It seems more likely that the US would decline simply because the GDP per capital has to reach a ceiling as we move towards a truly global economy with global competition.

Grantham has recently spoken about how people need to get used to investing in a world without growth, for the same reasons described in this thread. It’s an interesting perspective that has been largely ignored.

No, just wondering what individual investor would find japanese 10 years attractive from a risk/reward perspective.

Individual investors don’t and institutional investors are perpetually underweight. The demand for JGB is largely domestic.

I heard him say the same. I wonder how that would affect the stock market long term.

You gotta listen to Mr. Bernanke. The great student of the Great Depression. Deflation is a disease. It must be eradicated.

Growth has nothing to do with population. Though it does contribute. There are enough people in the world. Don’t you get tired of eating the same old shit at the same old restaurant? Something to think about.

You’re right, there’s not a single investor who has bought a Japanese 10 Year bond this year…