by Peter Schiff, Schiff Gold:
The message is loud and clear: The Japanese economy has no tolerance for higher interest rates after the Bank of Japan has kept them artificially near zero for decades. Meanwhile, as the largest holders of US Treasury debt, Japan’s economic well-being has become inextricably dependent on the capricious whims of Federal Reserve monetary policy — and both of those chickens have now come home to roost.
Exhibit A: Japan’s 100-year-old Norinchukin bank, which holds a whopping 20% of the total outstanding foreign bonds held by Japanese financial institutions. It just announced it would sell $63 billion in low-yielding US and European bonds at a loss, catapulting Norinchukin’s total annual losses to ¥1.5 trillion, or around 9.5 billion dollars.
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This follows a prediction just about a month ago that the bank’s losses would be ⅓ as much — and those losses still have room to grow if foreign bond markets don’t rally in the coming months. The losses exceed the bank’s previous record, set in 2009 during the financial crisis, by about 1 trillion yen, and bonds compose more than half of Norinchukin’s portfolio.
Norinchukin (“Nochu”) is Japan’s “farmer” bank: it holds around $600 billion in deposits from Japan’s agricultural and fishing collectives. Most of the pensions of Japan’s lowest-income workers are stored here.
Until recently, Nochu was best known as the CLO whale: it had… pic.twitter.com/TzanqrtXK9
— zerohedge (@zerohedge) June 19, 2024
Despite the BoJ’s April rate hike being minuscule, the domestic banking industry immediately began to sputter. The BoJ is broadly expected to announce another rate hike this year. But with Japanese banks already quivering under the weight of a mere 0.1% interest, and plenty of central bank “surprises” always possible, it’s hard to say for sure what the BoJ will attempt in the meantime to save its troubled economy. It has little hope of undoing the trap it set for itself from decades of zero percent interest rate policy and overdependence on US Treasuries.
The yen is now closing at 1990-era levels, remaining battered despite a $60 billion-plus BoJ intervention last May to prop it up, during which the BoJ cited “excessive speculative volatility” as the reason. As of this writing, the yen is right back where it was before the BoJ stepped in last May:
