Bank of Japan / Japan Public Pension Fund

For a retail investor outside of Japan, that is entirely possible. It is all Japanese pensions, banks (which have very high deposits and no loan growth) and some institutions that have to manage to a benchmark (Japan is a large issuer and thus a large weight in the index).

As a matter of fact, the BOJ has been buying so many JGB that liquidity has become an issue and Japanese banks have complained about the shortage of bonds available for purchse:

http://www.reuters.com/article/2014/04/15/markets-japan-jgb-liquidity-idUSL3N0N72SQ20140415

Not being a dick, this is just the truth from what I know. The demand for JGB is structural due to institional mandates and Abenomics. Foreign retail investors are not buying JGB.

I’ll give you a million to one odds on that bet.

I understand your point, which is essentially my point, that JPY 10 Year bonds are an awful investment. And yes, most of the demand is not coming from individual investors. But the fact remains, some investors are buying JPY 10 Years and I can’t imagine what possible reason they have for that specific trade other than blind diversification or some sort of roundabout way of trading currencies.

I’d also like to place my entire retirement savings on that bet, with million to one odds. :slight_smile:

You said: “I’m still not sure why anyone is purchasing Japanese 10 year bonds yielding 0.4%, the risk/reward there doesn’t make sense”

I gave you the entities who are buying and why they are buying. There are strategies out there that lever up the yield on JGB, which I find hilarious.

I would never take that bet, I thought you were using hyperbole. Also, you could just go out and buy a JGB to screw me over.

Yeah, being in NE Asia I don’t get it either. The central bank here in KR has the base rate at 2%. I keep some SKW in a 30-day time deposit which pays 2.4%, and see no material sovereign risk. But no such option currently exists in JP/US.

This.

This

Getting access to JGBs isn’t easy. Retail investors outside Japan can’t even get them outside of buying into funds that can, so they’re not really part of the demand to begin with. So the fact that they’re turned off doesn’t really matter.

There are institutions in Japan that are simply required to hold them as part of their mandate. They may want as little exposure as possible, but given how risky the Nikkei is and how (not) well it has performed since, like, 1991, you can see why local institutions with local pension obligations might just hold them. Sure the interest rate is crummy, but if they can always sell them to the JCB, at least their principal seems protected.

Obviously, this can’t go on forever, but it looks like it can go on for a long time. It helps that productivity in Japan is high, and they do seem to have more of a culture of cooperation amongst themselves so that it is easier to find people willing to take care of non-working elders as population declines. Because of productivity, it is more feasible, and because of culture it is more acceptable.

But how Japan handles population decline is going to be interesting to watch. They really don’t seem to like immigrants very much, even if they try to be polite to visitors.

The criticism of the growth mindset reminded me of my environmental economics days. It’s worth taking a look at Herman Daly’s Book “The Steady-State Economy” outlining lots of challenges that the “we must always be growing” mindset creates. I don’t know how to break away from that mindset or what will replace it (I know of some ideas, but few of them sound really practical). Nonetheless, that doesn’t mean that Daly’s analysis of the unsustainability of exponential growth forever is wrong.

I met Daly several times, and he’s an interesting - if quiet - fellow. He’s what everyone is looking for: a one-handed (literally) economist.

People wonder why I’m so concerned about the inequality issue. And it’s not simple “bleeding-heart liberalness.” It’s actually founded in the fact that the traditional solution of “we’ll just grow faster to solve it, and the poor will be in a better place because we’ll be producing so much more” doesn’t fit. Productivity improvements will help, but certain kinds of things simply require more resources and more energy that isn’t expanding at the same rate. And every time assets get concentrated, it becomes that much harder to solve. And of course, it looks like growth isn’t trickling down, at least not to the poor in developed regions. Perhaps globally it is trickling down to emerging middle classes in the developing world, and that is kicking off it’s own dynamics. At a certain point, developed market poor will be competitive with emerging market poor in terms of productivity and cost, but that’s likely to be either a generation or two away, or at a dramatic drop in standard of living here in developed countries.

I’m not saying that the developed poor are automatically more deserving than the emerging poor, but there is extra pain when large numbers of people have diminishing prospects for life quality, and sometimes that can be even harder than some forms of absolute deprivation.

So who is buying HEWJ (currency-hedged MSCI Japan ETF)?

JP equities show good earnings growth. Perhaps it will lead to more income inequality in JP, as it did in the US, but perhaps we will be the ones getting stinking rich??

“The Bank of Japan also said it would triple its purchases of exchange-traded funds (Nikkei ETFs) and real-estate investment trusts (REITs) and buy longer-dated debt.”

I think that play is interesting, I had been looking at DXJ which is very similar. I’m more confident in the Yen simply depreciating, so i went with YCS.

i wonder if the Japanese pension fund rotated to foreign stocks and bonds from gov debt before they announced the asset allocation change.

Yeah, this whole thing of pension funds holding mostly equities, and governments buying stocks, is kinda tripping my brain.

Which is why i think Japan will not be such a disaster like some folks predict it would be.

Exciting, Japanese gov bonds trading at negative yields today.

Meanwhile I keep making money on my JP equities…

U.S. bonds still firming up. with oil prices falling and therefore a little economic stimulus on the way, it will interesting to see if the Fed raises despite USD appreciation due to heavy USD and US bond buying by foreign buyers.