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The Bank Of Japan
The volume of the issue of the Bank of Japan at the beginning of 2023 went beyond all reasonable limits. The printing press is hot and haphazardly sloshing liquidity in all directions.
The Bank of Japan’s balance sheet is growing, both through the purchase of government bonds of the Japanese government and through an increase in bank lending (one thing that worked before). From January 1, 2023, to January 20, 2023, the assets of the Bank of Japan increased by 23.4 trillion yen. It was the most significant increase since December 1999, when 27.2 trillion yen was charged in a month, but since January 2000 almost everything was taken away.
This time, the increase in assets takes place within the framework of a consistent. It coordinated the policy of locking cash flows into the internal circuit of the Central Bank, i.e. essentially the nationalization of the entire financial system. During the COVID crisis, the assets of the Bank of Japan grew by an average of 16.3 trillion yen monthly. It had a peak intensity of 19.6 trillion in March and May 2020.
From April 2012 to April 2017, when the current monetary paradigm came into full swing, assets increased at a rate of 6.8 trillion yen every month. At the end of 2022, the balance sheet of the Bank of Japan remained almost unchanged. And from May to September there was a reduction of 53 trillion yen, largely due to the repayment of covid loans for 65 trillion yen. But since October 2022 they again started issuing.
From October 2022 to January 20, 2023, 41.5 trillion yen was poured into the system. There is 33.1 trillion through the purchase of government bonds and 9.3 trillion through increased lending, i.e. for other categories minus 1 trillion yen. The current balance is 727.3 trillion yen. It got up from a high of 738 trillion in April 2022, i.e. while there is compensation for the shrinkage of the balance of last year, the scale and speed?
The rate of Japanese government bond buybacks for the year is approaching 60 trillion yen compared to a maximum of 90 trillion in the summer of 2016. But this is for a year, and the main transactions occur in the last 4 months, and the most inadequate changes in January 2023. In the first 20 days of 2023, they bought 14.4 trillion government bonds and issued 8.8 trillion loans. The Bank of Japan went into overdrive. What does it all mean?
The Bank of Japan went on a rampage as it fired up the printing press at a pace never seen before. Loss of stability of the bond market. The problem is complex and multifaceted. Here, several negative factors and unique Japanese specifics simultaneously act.
The Bank of Japan is the only one among the central banks of large countries that have refused to compensate for the inflationary gap between actual/projected inflation and current rates in the money/debt markets.
One way or another, all the leading central banks raise rates. The start time of tightening and the speed of tightening differ. The Fed is ahead of the rest in this battle, followed by the Central Bank of Canada, the Bank of England, the ECB, and other Central Banks, but not the Bank of Japan.
The inflationary impact in Japan began approximately 6 months later than in the leading developed countries. But inflation is accelerating and the levels are significant at 4% as of December 2022. It is a lot for Japan.
Record inflation naturally distorts the debt market. It is destroying the ability of businesses and the state not only to borrow new debt but also to refinance existing debt. The market “requires” higher rates. The Bank of Japan is unable to resolve this for two reasons. It is because of an exorbitant debt burden and a specific debt structure. Japan’s debt is approaching 1,100 trillion yen in 2023. The debt burden is 230-240% of GDP is more than anywhere compared to 115% in the US and 97% in the Eurozone.
Half of the public debt is held by the Bank of Japan, 14-15% by state-affiliated Japanese banks, 20% by Japanese insurance funds, about 7% by pension funds, 7% by non-residents, and 1.2% by households.
Japan’s financial system has been gutted a little less than completely over the past 25 years. Everything that could be driven into public debt has already been driven. At the same time, the generated cash flow is objectively insufficient in the amount commensurate with the need to ensure financing of the budget deficit. There are no external investors in Japanese debt, unlike the situation in the dollar and euro zones. It is close to the international capital. Japan is a “thing in itself”.
Japan’s record trade deficit has led to a near-zero current account, and the rate differential in Japanese and foreign markets provokes an outflow of capital, which hit the yen in mid-2022, provoking the strongest collapse of the yen in several decades.
In Japan, capital flight trends in search of higher profitability are actualizing, while the generated flow through the current account surplus becomes insufficient to balance internal structural contradictions.