Syz the moment

Source: Bloomberg

As highlighted by zerohedge, Japan does NOT actually have high CORE inflation; it does however have soaring rice prices which have skewed inflation expectations across the population as rice is a huge component of the overall CPI basket. Meanwhile the BOJ is scrambling to contain inflation - which has tumbled ex food with real wages near record lows - and is tightening conditions by raising rates even though it has zero control over food inflation. However, as a by product of its monetary policies and strong yen, the bond market is crashing every day now... This bond crash could eventually spread to Japan's banks and global markets, sparking a global crisis. They thus need to do something. Yesterday, Japan's Ministry of Finance (MOF) said they will consider tweaking the composition of its bond program for the current fiscal year, which could involve cuts to its super-long bond issuance... This was enough to trigger a big drop in bond yields and the yen, which both came as a relief for global markets. What is happening on rice (and its deflationary consequences) is anotehr positive development Source: zerohedge, Bloomberg, Macrobond

Paper losses from Japanese government bonds TRIPLED from the last year. However, the BOJ's reported net income was ¥2.26 trillion ($16 billion). It can take years until these bonds mature. Source: Global Markets Investor, Bloomberg

Bloomberg

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A slump in Japanese bonds worsened Tuesday after the weakest demand at a government debt auction in more than a decade highlighted worries over the central bank’s retreat from the market. The rout drove up the 20-year yield by about 15 basis points to the highest since 2000, while the yield on 30-year bonds climbed to the most since that maturity was first sold in 1999. Yields on the 40-year tenor rose to a record high in a sign of nervousness ahead of a sale of that debt next week. The surge in yields underscores structural challenges particular to Japan’s debt market, along with the concerns of bond investors globally about the risks posed by rising government spending. Key Japanese buyers like life insurers aren’t stepping in to fill the gap as the central bank scales back its purchases of the nation’s bonds. Meanwhile, the Prime Minister’s comparison of his own nation’s fiscal position to that of Greece this week sharpened the focus on Japan’s huge debt burden. The result is that Japan’s bond curve is the steepest among major economies, even as yields globally are being driven higher, including for US Treasuries.

Source: Barchart

Japan’s inflation-adj GDP fell by 0.7% in Q1 annually. That’s worse than economists expected—they had predicted a smaller decline of 0.3%. Source: Bloomberg, HolgerZ