The Phaserl


Iron-Fisted Bank Of Japan Is Losing Its Grip

by Wolf Richter, Testosterone

Stability in the Japanese government bond market is “extremely desirable,” said Bank of Japan Governor Haruhiko Kuroda in a sign of just how frazzled he was after the turmoil and craziness that his over-the-edge experimental monetary policy has unleashed. “We are going to conduct our market operations in a flexible manner to head off, as much as possible, volatility in long-term interest rates,” he explained.

And he had some explaining to do. I’d always thought that the BOJ could control the Japanese Government Bond market with an iron fist, backed by the omnipotence of the printing press and supported by government-owned institutions that hold a big chunk of those JGBs, such as the Government Pension Investment Fund and the Post Bank. And then there are financial institutions that the government can lean on. So if the BOJ and the government work hand in glove, they can exercise total control over the government bond market. Or so it seemed.

But since April 5, doubts have crept into the scenario. That was the day when 10-year yields dropped to 0.315%, a record low, only to more than triple over the next six weeks to 1.0% on Thursday, the highest in a year.

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