The Bank of Japan must crush all resistance

[Ad Orientem]

Kudos to Kyle Bass at Hayman Advisers for warning that the Bank of Japan would lose control of its ¥70 trillion bond buying blitz. The spike in the 10-year yield to 1pc on Thursday was certainly shocking to behold.

His point is that the BoJ faces a “rational investor paradox”?. The authorities are trying to drive up the inflation to 2pc and therefore to devalue Japanese government bonds (JGBs), so why on earth would you want to own them?

“If JGB investors begin to believe that Abenomics will be successful, they will ‘rationally’ sell JGBs to buy foreign bonds or equities,”? he told Bloomberg

He says the scramble to sell has “overwhelmed”? buying by the BoJ. Governor Kuroda will now have double down with a huge increase in the scale of QE.

The argument is similar to warnings by Nomura’s Richard Koo, Japan’s most famous economist and an arch-Keynesian. The two men reach the same conclusion coming from diametrically opposed theoretical starting points.

As I reported last night, Mr Koo thinks the Abenomics plan of monetary reflation is madness. “Once inflation concerns start to emerge the BoJ will be unable to restrain a rise in yields no matter how many bonds it buys.”? This could lead a “loss of faith in the Japanese government”? and the “beginning of the end”? for Japan’s economy.

Read the rest  here.

[annieB]

At the flashpoint?

[notsheigetz]

It must be really hard on central bankers when they have to deal with something called  the  “rational investor paradox".

“Chaos is found in greatest abundance wherever order is being sought. It always defeats order, because it is better organized.”?

? Terry Pratchett, Interesting Times Stage Adaption