Bank of Japan

Main article: Economy of Japan

2024

Interest rate hike to 0.25% and plan to cut bond purchases

On July 31, 2024, the Central Bank of Japan raised interest rates for the second time since 2007, to 0.25% from a range of 0 to 0.1%.

He also said he would reduce the monthly rate of bond purchases to 3 trillion yen ($19.6 billion) by the first quarter of 2026. Recently, the pace of purchases has been about twice as fast.

Rejection of negative interest rates

The Bank of Japan in March 2024 completed the most aggressive monetary stimulus program in modern history, abandoning the world's last negative interest rate and a number of unconventional instruments, but the course towards further rate increases remained unclear.

The Central Bank set a new range of interest rates between 0% and 0.1%, moving from a short-term interest rate of -0.1%.

2022

Refusal to raise rates and increase in printing money due to lack of demand for debt at low rates

For December 2022, the Bank of Japan remains the only central bank that has refused to directly tighten policy, raising rates in accordance with inflationary pressure.

Having abandoned its own initiative, the momentum is moving to the side of the market and chaos begins, the Spydell Finance channel commented.

The problem lies in the almost complete absence of demand for Japanese debt instruments - neither business nor the state has the opportunity to locate. Liquidity dries up to "zero."

This leads to an increase in spreads in the market, when market rates on bonds begin to "fall off" from indicative money market rates under the control of the Bank of Japan.

Simply put, the market requires significantly higher rates - this destabilizes the markets.

So what did the BOJ do? It announced a new stage of quantitative easing (QE), raising the limit on asset buybacks to 9 trillion yen per month, from at least January to March 2023.

The current buyback rate is 32 trillion yen for the year, with half bought out in October-November 2022, the actual buyback rate is about 8 trillion yen, which is close to the new target border.

But to correct market inefficiencies, the BOJ decided to modify the yield curve, allowing medium and long-term government bonds to move 0.25 pp above current levels, narrowing market spreads, in an attempt to address inefficiencies.

All this, in fact, means tightening monetary policy while mitigating - asset buybacks, unsynchronizing the Central Bank's transmission mechanism and losing control over the market.

As a result, rates on 10-year government bonds in Japan rushed to the maximum yield from 2015 to 0.42%, trading in futures on JGB (Japanese state bonds) was stopped due to a wave of margins, the market collapsed by almost 3%, the yen is sharply strengthening by 2.8% to 133 levels (the top 10 fastest phases of yen strengthening in 15 years).

The costs of the Bank of Japan's inadequate policy are the inevitable capital outflow from Japan at the rate differential between yen, dollars and the euro, adding to this the collapse of the domestic debt market due to the lack of demand with all the ensuing consequences.

In fact, there is no market for Japan's public debt. There is a Bank of Japan market and commercial Japanese banks and pension funds controlled by the Central Bank. The problem is that the money remained only with the Central Bank.

When the money ran out inside the financial system, the Bank of Japan began to buy up debts so quickly that it bought up over half of the total government debt. This has had disastrous consequences not only for asset pricing, but also for a market structure that has become degenerate and highly dependent on ultra-low rates.

Any move above the weighted average narrow near the zero range is an unprecedented shock in the system. That is why the Bank of Japan has not moved the rate until now, because it destabilizes the financial system, which has lost the ability to digest imbalances on its own.

The Bank of Japan leads in relation to the size of its balance sheet to the country's GDP

As of June 22, 2022

A slight reduction in the integrated balance of the Bank of Japan is associated with the return of about 60 trillion yen of "emergency COVID-19 loans" from August to November 2022, issued mainly to the Japanese banking system from May 2020 to June 2021.

As of November 2022

The total volume of loans issued amounted to over 100 trillion yen, that is, about 60% of what was received was returned. The formed liquidity deficit led to the resumption of QE (see above). The financial system likes to take, but prefers not to give, commented on the Spydell Finance channel.

2021

Since the beginning of the COVID-19 pandemic by mid-2021, central banks in the United States, Europe and Japan have spent $9 trillion, which has turned them into the largest whales in the market with total assets of $24 trillion.

This is equivalent to the total market value of the dozens of largest and most famous companies in the world.

Most of these funds turned out to be in the form of bank deposits, providing creditors with liquidity. Pumping that money through the economy will be key to sustaining the recovery as central banks cut stimulus.

2020: BOJ sets interest rate below 0

On April 27, 2020, the Bank of Japan announced that the interest rate was set at a negative level - minus 0.1%. The regulator linked this and other measures, including the unlimited purchase of government bonds, as well as an increase in the repurchase of corporate debt and simplification of financing for banks, with the situation in the global economy amid the COVID-19 coronavirus pandemic.

For the country, the negative interest rate was not set for the first time: in January 2016, the indicator was at -0.1%. This means that the funds of private financial institutions stored in the accounts of the Bank of Russia will be charged a fee of 0.1% from certain amounts.

On April 27, 2020, the Bank of Japan announced the setting of the interest rate at a negative level - minus 0.1%

Other measures announced by the Bank of Japan on April 27, 2020 include an increase in the target volume of corporate bond buybacks and short-term bills to 20 trillion yen per year.

In addition, the Japanese central bank raised the upper limit for the redemption of bonds of one issuer to 300 billion yen from 100 billion yen, promissory notes - to 500 billion yen from 100 billion yen, as well as the upper limit for the circulation of bonds subject to redemption up to 5 years. The target volume of the exchange-traded index fund (ETF) buyback program was left at 12 trillion yen, the Bank of Japan said in a statement.

The regulator also announced its intention to buy an unlimited number of government bonds. Previously, their buyback was limited to 80 trillion yen. At the same time, the Central Bank confirmed the decision to continue to target the yield of 10-year government bonds at a level close to 0%.

Japan's economy is in an increasingly difficult situation due to the impact of the novel coronavirus pandemic, the Bank of Japan said in a statement. - Financial conditions have deteriorated in terms of corporate financing, as can be seen from the deterioration of companies.[1]

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