Deutsche Bank: Japan’s financial markets on the brink of systemic collapse

Japan financial

Deutsche Bank warned that the Bank of Japan’s bond-buying policy to achieve its yield curve control (YCC) target could cause financial markets “dramatic , unpredictable nonlinear” fluctuations, and the yen completely lost its fundamental valuation anchor, and the Japanese financial market was on the verge of a systemic collapse.

Since the beginning of this year, the depreciation of the yen has accelerated and is currently at a 24-year low. The Bank of Japan’s bond purchases in June will reach about 10 trillion yen, analysts at Deutsche Bank said in a research report titled “Money Printing Machines Are Running Overdrive.” If you look at this scale in the United States, it is equivalent to the Fed’s monthly bond purchases of 300 billion US dollars to implement quantitative easing. Deutsche Bank sees the BOJ’s move as a “truly extreme” level of money printing, given that central banks in every other major economy in the world are tightening monetary policy. This is one of the reasons why Deutsche Bank has been bearish on the yen. Analysts worry that the Bank of Japan is printing money on such a large scale that the yen and Japanese financial markets are losing any fundamental-based valuation anchor. The worse the global inflation, the more the BOJ prints more money. But the more easing accelerates, the more necessary and dangerous it becomes to hit the brakes as you approach the inflation cliff.

Since Monday, foreign capital has accelerated to flee Japan. Japan’s stock market, bond market, and foreign exchange markets fell across the board. In the stock market, the Nikkei 225 index once fell by more than 3%, and Tokyo Electronics and Softbank dragged the index the most; in the foreign exchange market, the yen fell below the 135 mark and continued to record lows; in the bond market, the yield on Japan’s 10-year government bond rose to Above 0.25%, it rose above the upper end of the Bank of Japan’s policy range. The Bank of Japan said it would buy an additional 500 billion yen in 5-10-year government bonds on Tuesday. It is worth mentioning that the Ministry of Finance, the Bank of Japan and the Financial Services Agency of Japan issued a joint statement last week to conduct “verbal intervention” on the yen exchange rate. However, judging from the market trend in the morning, the trend of the yen exchange rate, which has hit a new low in more than 20 years, is not easy to change. (2022-6-14 Wall Street News)