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Japan financial news; How terrible is the "widow deal"

发布时间：2022-08-25 浏览：118

Financial news agency, June 23 (editor Xiaoxiang) in the past two decades, the practice of shorting Japanese government bonds in the expectation of soaring yields has been regarded as a "widow transaction" with great risks in the industry. As more and more latest data surfaced, how fierce the "widow trading" war launched by Japanese bond bears last week was finally gradually revealed to people.

Data released by Japan's Ministry of Finance on Thursday showed that overseas investors sold a record amount of Japanese government bonds last week, as people are increasingly skeptical about the Bank of Japan's ability to contain the rise in Japanese bond yields at a time of soaring global interest rates.

As of the week of June 17, the scale of Japanese bonds sold by overseas investors reached 4.8 trillion yen (about 35.3 billion US dollars).

Before the interest rate decision of the Bank of Japan on Friday, the bearish sentiment of the market for Japanese government bonds had rapidly increased, and traders had bet that the Bank of Japan would be forced to adjust its yield curve control policy. However, the Bank of Japan ignored external criticism last Friday and insisted on maintaining unconventional easing interest rates against the backdrop of heavy pressure on Japanese bonds and the yen.

Eugene Leow, fixed income strategist at DBS Bank, said that the outflow of funds was likely due to many market speculation before the Bank of Japan's decision. The futures market is also facing considerable pressure. "Our indicators show that the Bank of Japan has not reached the stage where it needs to adjust the yield curve control policy. However, the market may reveal the above trend again near the next decision of the Bank of Japan," Leow said.

At present, while other major central banks have raised interest rates to curb high inflation, the Bank of Japan has been opposed to policy normalization. The bank insists that the economy still needs support, and Japan's rarely improving inflation rate also needs greater wage growth to stabilize.

Japanese central mother completely spelled it out

According to the data collated by the industry, in order to curb speculative short selling, the Bank of Japan bought up to 10.9 trillion yen (about $80.8 billion) of Japanese government bonds in one fell swoop last week, with a record weekly purchase volume. This also means that the scale of the Bank of Japan's purchase of treasury bonds in the past week is equivalent to the total purchase of treasury bonds in one month during the Federal Reserve's rescue from the epidemic (the Federal Reserve purchased $80billion of treasury bonds per month at that time).

The Bank of Japan, like the shogunate warriors, would rather die than be destroyed. Undoubtedly, those speculators who intend to snipe at Japanese government bonds have to think twice.

However, the Bank of Japan's Tianliang bond purchase itself is not without "sequelae".

According to industry estimates, the Bank of Japan may now have pocketed nearly half of the Japanese government bonds - the proportion has reached 49.2%. Globally, no major central bank has ever reached this proportion. This means that the Bank of Japan has become an absolute force in the Japanese bond market. From the perspective of domestic and overseas holders of Japanese bonds, they may find it difficult to adapt to this unbalanced situation.

Judging from the balance sheet, the balance sheet of the Bank of Japan has accounted for 137% of GDP, surpassing the Swiss central bank, which just announced the interest rate hike last week, and taking the lead among the major central banks.

George saravelos, a strategist at Deutsche Bank, said earlier this month that the Bank of Japan's extreme money printing action is making the yen and Japanese financial markets lose their fundamental valuation anchor. Due to the yield curve control policy, the higher the global inflation, the Bank of Japan will have to print more. But the faster the easing policy accelerates, the more necessary it is to step on the brakes when the inflation cliff approaches, which will become more dangerous.

Deutsche Bank strategists said that as a result, we will soon enter a stage - dramatic and unpredictable nonlinear changes in the Japanese financial market.

He also pointed out, "if the market clearly begins to realize that the future liquidation level of Japanese bond yield will be higher than the 0.25% target set by the Bank of Japan, what motivation is there to continue to hold bonds?"