Wednesday, December 17, 2014

This is Not Natural

For the last 3 months the Yen is losing on average around 1% per week:


Yet the yield on 2 year Japanese Government Bonds (JGBs) is negative.  You have to pay the government to take your money.   The 5 year yield is 0.05%.   This means after 5 years you get a total of about 0.25% interest.   This is about what the Yen loses in the average day recently.


They are printing at a rate of 80 trillion yen per year and buying mostly JGBs, much more than the total taxes collected.   This has driven up JGB prices far into bubble territory.  These yields are absolutely nuts.  It is not natural.   Only massive central bank money creation and bond buying makes these kinds of numbers possible.   These are not free market rates.  Sane people are not buying JGBs at these yields with the value of the Yen falling fast.   The insane central bank must be the only buyer.

 Bubbles always fail somehow.   Since the Japanese government could not afford rational interest rates on their debt, I expect the central bank to keep interest rates down.   However, to do this they have to make new Yen so fast that they will destroy the currency.

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