Wednesday, March 16, 2016

Shape of graph for BOJ holdings of JGBs

In an article on the BOJ holdings of JGBs they have the above graph.  Note that BOJ is Bank of Japan and JGB is Japanese Government Bonds.  The red curve above is actual data and the blue part is a projection.   I think the projection is wrong.  The red part looks like it is curving up while the blue projection is linear.  If the curve is really an exponential growth curve, and the projection is linear, then after a few years the projection will be way off.  Even with this linear projection they get to owning about 50% of the JGBs within about 2 years.  I don't believe there is any historical case of any country monetizing such a large fraction of such a large debt without very high inflation.  If inflation picks up you can be sure everyone will want to dump their JGBs, since fixed rate bonds lose value fast as inflation picks up.  This will make the BOJ buy even faster.  So I expect the real graph will keep curving up.


  1. On the other hand the total government debt to GDP is flattening:

    If the market is fine with current debt levels, and if they are flattening, I think the market would also be fine with BOJ owning more Bonds.

  2. Hey Vincent, do you recall more than two years ago now... I asked you for your thoughts on when Japan would start experiencing hyperinflation (your version of low bar hyperinflation: 2% a month, which works out to about 26% a year) for at least two months in a row. You very bravely went out on a limb and said the beginning of 2016... so if that's the 1st two months, that would have been January and February.

    I can't find our original conversation on that, but here's a 1-year reminder and your response (you were still on board for January of 2016 at the time).

    1. ... and yes, I know you qualified that saying it's hard to predict. But even a year and 3 or four months ago (my link above) you were saying "stick a fork in it!"

      (I figure I better get my dig in now while I have the chance) :D

    2. But note that I can get 100 to 1 payoff if I am right on a 2 year bet. I could be wrong for many years and as long as I was eventually right I could do well. The "no hyperinflation this year" prediction is like a stopped clock that is right most of the time. :-)

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