Japan’s Government are Losing Revenues

Source:

Kuroda Money-Go-Round Undercuts Japan Negative-Rate Windfall

BOJ’s Eventual Stimulus Exit Could Eat Up Reserve in Five Months

BOJ Bond Valuation Losses Are Said to Be $8 Billion in 2015

 

2016/09/09 update

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Japan’s government is not profiting from negative yields!

1.The BOJ buys debt from the market
-> pushes prices up and yields down
-> gives extra money to the MOF.

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2. The Finance Ministry pays interest income to the BOJ for the bonds it now holds
-> although rates is low (10-year notes currently at 0.1 percent)
-> the amount is huge (BOJ owns almost 327 trillion yen in sovereign debt)
-> interest income in 2015: 1.29 trillion yen

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3. The BOJ then uses some of its income to pay for the valuation losses on owned bonds
<- Because BOJ buys debt for more than the face value, and has to write it down [1]
-> BOJ wrote down the value of JGB holding by 874 billion yen in 2015, 40% of the interest income

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-> Obviously, if the amortization losses from the BOJ’s bond buying operations become too large, income could go less, even negative

-> The BOJ will buy 120 trillion yen worth of bonds this year(80 QE+40 Redemptions) [4]
-> if it buys 100 yen bonds at 103 yen, that would mean a total loss of 3.6 trillion yen
-> if we assume the average period is 10 year, that would mean 0.36 trillion loss increased per year !  [2]
-> BOJ’s last year coupon income is about 1.3 trillion, it will take only 4 years to make it negative under recent price level.
-> And don’t forget with prices high and coupons low, more and more of the debt on its books will have a negligible income and a high price that needs to be written down.

1x-119スクリーンショット 2016-08-28 19.30.22

-> Therefore BOJ could go bankruptcy if bond purchasing continues! [3] 
# but of course BOJ can prolong the duration of its holdings

4. BOJ then returns much of its leftover profits to the MOF as dividend.

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5. BOJ has to cut dividend so that it could back up its reserve 

-> In 2015, the BOJ cut 450 billion yen from its dividend to the government so it could increase its reserve to cover potential losses on bond holdings. [6]
-> According to Bloomberg, Japanese Government benefited 110 billion yen extra money from NIRP [5]
-> The government’s revenue actually decreased under massive stimulus!!

6. Things might be going to worse

The BOJ has approximately 2.7 trillion yen in provisions for potential bond losses after setting aside 450 billion yen in 2015, given its financial statement 

If the BOJ tapers stimulus, it will face potential losses on

  1. bond holdings
  2. higher interest payments on lenders’ reserves

Policy maker Takahide Kiuchi estimated the central bank could face losses of 7 trillion yen per year during a taper of its stimulus.1x-122

“When people realize the limits to the BOJ’s finances, it could possibly create a massive shock”
“The bank has about 7 trillion yen in capital, but that would be eaten up quickly.”

7. Conclusions

A. If BOJ continues its recent project, both the government and BOJ will lose money and go bankruptcy

B. If BOJ suddenly exits from its unprecedented easing policy, existing reserves will be insufficient and it will go bankruptcy

C. The BOJ have to exit, or do helicopter money. But it will definitely avoid selling its bond holdings, and “instead will probably try to maintain its balance sheet by raising the deposit rate”

 

[1]

So that the book value eventually equals the principal. The basic point is that as BOJ committed to hold these bonds until maturity, it doesn’t value the bonds at market price but takes the markdown gradually so that at maturity the book value equals the principal.

More specifically, for the most recent 10-year note, the MOF initially auctioned it for 101.96 yen and the BOJ probably paid more than that. It will now have to take a 2 yen or more loss on each of the bonds in that series it owns, so that when it matures in 2026, the price on its balance sheet will be back at 100 yen. The benchmark bond price was 101.779 yen, with a yield of minus 0.08 percent

[2]

In its purchase operations on June 10, the BOJ bought 416 billion yen worth of the No. 342 10-year bond, at an average price of about 102.65 yen.

The BOJ will earn 416 million yen income annually from the 0.1 percent coupon on these bonds, and will have to write down 1.1 billion yen each year to account for the 2.65 yen by which the purchase price exceeded the principal.

And don’t forget BOJ’s purchases often occur at a slight premium to the current market price.

 

[3]

“The BOJ couldn’t go bankrupt in the way a private bank could”

“One could make an economic case that the balance sheet of the central bank should be of marginal relevance at best to the determination of monetary policy,” Bernanke said in the speech, made years before he enacted unprecedented stimulus as Fed chair. “There are many essentially cost-less ways to fix” it, including assistance from the Ministry of Finance, he said.

[4]

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[5]

Japan’s Ministry of Finance made about 110 billion yen ($1.1 billion) more in the year to April than it would have if yields had been zero

[6]

The central bank is holding on to as much as half of the profits from the interest received on its bond holdings, after an accounting rule change in November.

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20 Years Downside Trend In Real Interest Rate

 

全球如何爬出“长期停滞–负利率”的陷阱?

http://www.puoke.com/sns/articleContent.php?id=10258

 

现在发达经济体的实际利率长期趋势性下行至一个极低的水平,全球有14万亿美元的主权债券已经处在负收益率水平。

但实际利率的下行趋势早在20年之前就已开始,并在2008年危机前夕已经跌至现代资本主义历史的新低。

原因是投资需求相对储蓄显著下降。萨默斯讲,西方经济面临长期名义总需求不足,现在实现充分就业所要求的实际利率非常低。要使经济增长率和潜在增长相一致,如果应有的实际利率水平为负的话,现有的货币政策常常可能实现不了。

 

比起合意储蓄是否增加,关键是投资需求为什么会趋势性降低?

供给侧

信息技术解决“信息不对称”出现了边际突破,使得交易成本出现了跃变,从而改变人对最终产品和服务的价值判断的结构,反转过来改变了社会化大生产的组织流程,引致了生产关系的变革

  1. 信息信息技术革命快速降低了硬件和软件的价格,使得单位美元的投资支出变得事半功倍。
  2. 互联网经济(云计算、大数据、物联网和移动互联),共享经济模式能够颠覆传统企业和行业的边界,使得传统资本品的使用效率显著上升,使得私人投资需求可能显著下降
  3. 互联网省去了传统生产流通渠道的不必要的环节、损耗效率的环节,实现了服务商和消费者、生产制造商和消费者更加直接地对接。需求的空间和内涵被不断创造和拓展,新的需求的产生和旧的需求的消亡的速度都可能是指数级的。甚至在某一阶段对总需求的边际影响是整体下行的。
  4. 商品和服务的价值构成被改变后,宏观上的表现就是增长开始淡化资本投入(CAPEX)的效应,生产函数被重构。因为投入的重要性在降低,对传统要素的争夺自然会变得不那么激烈,价格便有了下行的压力,更低的通胀有了微观基础。菲利普斯曲线框架下低利率政策只是货币当局对于增长中枢的反应。

需求侧

长久低利率导致私人信用不再愿意支持Capex,转而支持投机性的存量资产的交易。(?)投资相对于储蓄的缺口变大,金融系统被激励为资产投机提供融资,并辅以复杂而危险的金融工程技术。(次贷危机)

 

系统的脆弱性

自由金融市场为金融系统内部的交易活动提供了私人激励,使得金融交易活动的规模远远超过它们能创造的实际社会价值。更关键的是金融密集度的上升可能使金融市场和宏观经济系统更加不稳定。

史无前例的“央行泡沫”由此生成。胀与缩预期切换频繁,避险和风险可以一起涨,市场对金融能刺激经济充斥着不信任感,但对金融杠杆能托举资产通胀仍心存侥幸

金融资产投机导致贫富悬殊,人与资本矛盾冲突。

  1. 贫富差距扩大会带来边际消费倾向的下降,会进一步加剧名义总需求不足(贫富加剧导致平均储蓄率上升,并抑制投资需求增长)。死循环。陷阱。
  2. 如果依赖永久性的极低利率来避免长期停滞,似乎将难逃整个系统不稳定厄运。不仅仅是金融和经济层面的,更会外溢至政治和社会的动荡。左倾政治,民粹主义、保守主义、孤立主义。

 

两种解决方式

  1. 结束超常规货币政策,财政扩张。抑制与生产性投资无关的信用扩张(金融资产交易),运用公共政策支持社会所必须的基础设施的长期投资,以弥补总需求不足。
  2. 破坏性的,反自由贸易倾向,反全球化。

 

总之

  1. 未来全球资产市场波动率会显著加大
  2. 当交易者彻底意识到,央行们不能再推动资产价格上涨,那时候他们就会撤离市场。
    这种场景不一定来自于某种建设性或破坏性势力的出现,更多来自于市场对负利率的恐惧,riskoff本身就是一种自然力。
  3. “高频震荡+宽松货币”的状态可能持续成稳态?或是最后形成一个巨大的波动来终结?

Korekiyo Takahashi and Helicopter money

Learn from history: Korekiyo Takahashi and Helicopter money

Three questions left:

  1. What drives the different outcome of helicopter money in the history?
  2. Why did government bond rate remain low and there is no inflation after the unprecedented QE?
  3. Does helicopter money work today?

The reason for 2 might be the rising asset price and stalled wage level. The slump of commodity price is a best proof for the mismatched capital.

 

Helicopter Cash Clues Lie in Life and Death of Japanese Viscount

http://www.bloomberg.com/news/articles/2016-07-18/helicopter-cash-clues-lie-in-life-and-death-of-japanese-viscount

 

In the early 1930s, Viscount Korekiyo Takahashi initiated the equivalent of helicopter money, using the BOJ to directly finance deficit spending by the government.

Takahashi’s reflationary policies “brilliantly rescued Japan from the Great Depression,” Ben S. Bernanke said in 2003. A steep yen decline helped.

So what lessons should be drawn today as Kuroda seeks to stave off a deflationary downturn?

Helicopter money:

– a fusion of fiscal and monetary policy
– Rather than issuing debt, a national government draws newly printed money from the central bank, then injects that cash straight into the economy.

– Unlike debt-financed fiscal programs, a money-financed program does not increase future tax burdens

(Ricardian posits that debt-financed government spending doesn’t lift an economy because citizens know it will have to be paid for with future tax increases, depressing demand.)

However:

economists have long insisted a free lunch doesn’t exist:
its repeated usage ultimately spawns hyper-inflation. (See the U.S. Confederacy during the 1861-1865 Civil War or Zimbabwe in the last decade.)

But in some cases like Takahashi’s one, the inflation looks like controllable

Law:

The BOJ by law is prohibited from buying government bonds directly from the finance ministry. Instead, it purchases them from intermediaries such as banks.

“Unless the existing legal framework changes, helicopter money isn’t possible,” Kuroda told Japanese lawmakers on April 19.

Fact: Japan is already engaged in a strategy that involves helicopter money

Because of the negative yields on Japanese government debt, banks have little incentive to buy them unless they expect to sell them later to the central bank under its asset buying program

Whether that’s financed by issuing bonds at roughly zero interest rates or by drawing money from the central bank “doesn’t make a whole lot of difference”

We might actually see policies that economics students only ever talked about in an imaginary or long ago world (i.e. the 1930s) become real.”

 

 

ヘリコプターマネー~その内容と実現可能性は~

http://www.bank-daiwa.co.jp/column/articles/2016/2016_17.html

 

リーマン・ショック後、ベン・バーナンキは、危機を乗り切るため、フリードマン氏の主張するヘリコプターマネーに近い金融緩和策、QE (量的緩和) 策を実行し、ゼロ金利脱却に成功した。

QEは、中央銀行が新たに印刷して生み出した紙幣を使って国債を購入する方法

金利を下げ、政府は財政出動をして景気を刺激する
政府の財政出動は政府債務を増やし (金利を上げ)
民間投資を損なう恐れ
増税を恐れて消費を減らすこと

ヘリコプターマネーと通常のQEとの違い

前者は政府の財政負担にならない

中央銀行の買い切りや無期限の償還などによって、政府ははじめて無制限に国債を発行できる

現在のアベノミクスのQEでは中央銀行の日本銀行が年間80兆円の国債を買い取り、政府は日銀に利息を支払い、そう遠くない将来には国債の元本を償還しなければならない。

景気は良くなり、インフレにはなるがコントロールできないこともない

米国は第2次世界大戦時の戦費調達のために、FRBが国債の大半を買い切って資金を提供したものの、極端なインフレなどの後遺症はなかった

日本でも、1931年に発足した犬養毅内閣の高橋是清蔵相が、国債の日銀引き受けによる財政拡張政策を断行し、金本位制からの離脱や円切り下げの政策と合わせて、世界に先駆けて景気回復、デフレ脱却を実現させている

一方、

ヘリコプターマネーの実行は1920年代にドイツで起きたような「ハイパーインフレ」を招く
国債の金利を暴騰させて、通貨を暴落させる
食料とエネルギーの大半を輸入に頼る日本のような国家は、あっという間に円安が暴走して輸入物価の急騰を招き、ハイパーインフレを引き起こす

日本も、30年代後半以降は、軍部の暴走を財政面で抑えることができなくなって、そのまま太平洋戦争に突入し、45年の敗戦直後、年間500倍というハイパーインフレを経験している

暴走し始めたインフレを止める手段はそうそうあるものではない
1990年代に始まったジンバブエのハイパーインフレは、最終的には自国の通貨を捨てて米ドルを自国通貨とすることで乗り切らざるを得なかった。

 

実際問題

国債の「市中消化の原則」があったけど、マイナス金利を導入した日本銀行では、利息なしの国債を償還期限なしで発行しているのと変わりなく、実質的にヘリコプターマネー導入状態でないのかともいわれている。

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1x-11

安倍内閣では日本銀行が、日本国債の新発債の7~8割を引き受けている。アベノミクス以前は、日本銀行が保有する国債は50兆円程度だったのだが、いまや300兆円にまで膨れ上がっている。