$10 Trillion of Negative Yielding Bonds, George Soros Bets Big on a Market Crash!

Negative yielding global bonds have reached $10 trillion says Fitch. This means that instead of borrowers paying lenders for the privileged to access someone else’s or the lender’s savings, negative yields means lenders are paying borrowers to borrow! Of course under the fractional reserve banking, lending is not a function of someone else's savings but from the central bank's digital press traditionally channeled through banks. 

Even more, any entity that owns a negative yielding instrument is guaranteed of losses. So the broadening of negative yields simply means that losses in the financial and economic system has been mounting! And all these for the sake of holding onto liquid instruments that ensures of the financing of spendthrift governments around the world. 

In short, negative yield is like a premium for the convenience yield. 

Think of what this will do to financial institutions, which are required to hold government debt as part of their Tier 1 Capital. 

And think of what this will do to pension funds. In order to match assets with liabilities these institutions are being forced out into the financial markets to gamble. And the yoke of the attendant risks from such speculative activities will be shouldered by depositors and pension beneficiaries…and eventually taxpayers and currency holders 

In Japan, because primary dealers are required to buy government bonds, Bank of Tokyo-Mitsubishi UFJ (BTMU) mulls to quit from such a role given the prospective losses. 

It has really been an upside down world that has been spawned by desperate central bankers. 

Negative Interest Rates (NIRP) have been designed to the shield the mountain of accumulated debt, particularly government debt, from imploding and setting off a crisis. 

And don’t forget given the globalization of financialization these negative yields brought about by NIRP have been transmitted to as partly carry trade or cross asset arbitrages. For instance, bond traders have sold negative instruments and have been piling into any bonds such as US treasuries with  positive yields. Some of these has been spilling over into emerging markets (which should include the Philippines) 

Well not everyone agrees that central bank magic have its desired effect. 

Investing savants like Stanley Druckenmiller and Carl Icahn have bet recently big on the prospects of a market crash. 

Today, international media also reported George Soros have taken a sizeable position on a market crash. 

From the Business Insider (bold mine) 

Legendary investor George Soros is back to making big bets. 

Soros has returned to trading after a long hiatus, according to Gregory Zuckerman over at The Wall Street Journal. 

He has recently directed a series of large bearish bets, selling stocks and betting on gold, the report said. 

Soros, who ranks second on the list of the most successful hedge fund managers of all time, has spoken publicly about his concerns for the global economy. 

He recently said that China's financial system right now "eerily resembles what happened during the financial crisis in the US in 2007-08." 

And in Davos earlier in the year, he said that the world is running into something it doesn't know how to handle, and that he was betting against Asian currencies and commodity-linked economies. 

China later warned Soros against going to 'war' on its currency 

Soros stepped back from day-to-day trading some time ago, and his return to investing marks a turnaround. 

Scott Bessent had been the top investor at Soros Fund Management, but he left last year tolaunch his own fund, Key Square Group In January, Soros Fund Management named Ted Burdick as its news chief investment officer

Well you may interpret as my appeal to authority. Regardless, such unprecedented monetary-NIRP policies will come with big unintended very nasty consequences.

And because the world is interconnected and interdependent, rallying Philippine assets have been a consequence of the Developed Nation's negative interest rate and ZIRP policies for the rest. Yes the BSP has a negative real rates policy. Soros or no Soros.

Central Bank Panic: Sweden's Central Bank Expands QE! Keeps Negative Interest Rate

Why has the stock markets of developed economies run amuck over the past week?

The US S&P

Europe's Stoxx 600

Japan's Nikkei 225 (not update for today's or April 21st trade where the said index spiked by 2.7%)

My guess? Aside from the supposed agreements by oil producers to cut oil production, which has become a key stimulus, another substantial part of the answer could be from the implicit Shanghai Accord. Global central banks appear to have undertaken an unannounced coordinated project of implementing monetary easing of their respective domestic financial system designed to propel risk asset markets higher or stoke the 'animal spirits'. Such tacit project, which may have emerged during the G-20 meeting in February, have been sold to the public as intended for inflation and growth enhancement.

Stock markets have become an instrument for policy making, thereby its sustained perversion. Thus, as global central banks remain on a panic mode, such translates to panic buying for stock market casino gamblers whom are the main beneficiaries from such policies.

Well, Sweden's central bank just announced an expansion of QE

From Marketwatch.com

The Swedish central bank raised its bond-buying target to 245 billion Swedish krona ($30.35 billion) on Thursday, saying the move, coupled with the bank's negative benchmark interest rate, is aimed at holding down the national currency and safeguarding a rise in inflation.

The revised policy plan will see the Swedish Riksbank, the world's oldest central bank, buy an additional SEK45 billion in government bonds in the second half of this year, on top of the SEK200 billion it is in the process of buying by the end of June.

Its main interest rate will remain at minus 0.5% where it has been since February.

Yesterday the Bank of Japan signaled that it may expand the purchasing of stock market ETFs

From Yahoo.com

Bank of Japan Governor Haruhiko Kuroda said on Wednesday the central bank's presence in the exchange-traded fund (ETF) market is "not too big," signalling that topping up purchases of ETFs could be a real, near-term option.

Later today, the ECB will have its decision day. Global markets seem all focused on central bank actions.

In short, to keep stock markets in suspended animation, away from the reckoning of harsh economic reality, central banks will continue to rain "stimulus" on stimulus addicts.

Quote of the Day: What Goes Around Comes Around, Even Central Banks Suffer from Negative Rates

Spontaneous Finance Blog's Julien Noizet pointed out that the perceived "free lunch" from negative interest rates hasn't been free, not even for central banks which has implemented them:

Central banks are indeed big players on the market due to their OMO and related policies that involve purchasing and selling billions of assets in order to influence market prices, aggregate amount of high-powered money and interest rates. They also invest in other currencies and commodities and place cash with other central banks.

Unfortunately, a number of their placements are now generating negative returns and yields on their fixed income investments (often government bonds) are now very low, if not negative.

The irony of the whole situation is that central banks initiated their conventional and unconventional policies partly in order to help (i.e. force) the private sector to take more risks (‘search for yield’). What goes around comes around, and it is now central banks’ turn to follow the same route. In short, they are now turning into vulgar commercial banks that attempt to please their shareholders (i.e. budget-constrained governments who need this cash).

But in doing so, they also potentially endanger their capital base.

If something cannot go on forever, it will stop (quote attributed to the late economist Hebert Stein)

What Was the US Fed Chair Janet Yellen's Secret Meeting with US President Obama All About?

Former Congressman Ron Paul offers an explanation at his website: (bold added)

This week, President Obama and Vice President Biden held a hastily arranged secret meeting with Federal Reserve Chairman Janet Yellen. According to the one paragraph statement released by the White House following the meeting, Yellen, Obama, and Biden simply “exchanged notes” about the economy and the progress of financial reform. Because the meeting was held behind closed doors, the American people have no way of knowing what else the three might have discussed.

Yellen’s secret meeting at the White House followed an emergency secret Federal Reserve Board meeting. The Fed then held another secret meeting to discuss bank reform. These secret meetings come on the heels of the Federal Reserve Bank of Atlanta’s estimate that first quarter GDP growth was .01 percent, dangerously close to the official definition of recession.

Thus the real reason for all these secret meetings could be a panic that the Fed’s eight year explosion of money creation has not just failed to revive the economy, but is about to cause another major market meltdown.

Establishment politicians and economists find the Fed’s failures puzzling. According to the Keynesian paradigm that still dominates the thinking of most policymakers, the Fed’s money creation should have produced such robust growth that today the Fed would be raising interest rates to prevent the economy from “overheating.”

The Fed’s response to its failures is to find new ways to pump money into the economy. Hence the Fed is actually considering implementing “negative interest rates.” Negative interest rates are a hidden tax on savings. Negative interest rates may create the short-term illusion of growth, but, by discouraging savings, they will cause tremendous long-term economic damage.

Even as Yellen admits that the Fed "has not taken negative interest rates off the table," she and other Fed officials are still promising to raise rates this year. The Federal Reserve needs to promise future rate increases in order to stop nervous investors from fleeing US markets and challenging the dollar’s reserve currency status.

The Fed can only keep the wolves at bay with promises of future rate increases for so long before its polices cause a major dollar crisis. However, raising rates could also cause major economic problems. Higher interest rates will hurt the millions of Americans struggling with student loan, credit card, and other forms of debt. Already over 40 percent of Americans who owe student loan debt are defaulting on their payments. If Federal Reserve policies increase the burden of student loan debt, the number of defaults will dramatically increase leading to a bursting of the student loan bubble.

By increasing the federal government's cost of borrowing, an interest rate increase will also make it harder for the federal government to manage its debt. Increased costs of debt financing will place increased burden on the American people and could be the last straw that finally pushes the federal government into a Greek-style financial crisis.

The no-win situation the Fed finds itself in is a sign that we are reaching the inevitable collapse of the fiat currency system. Unless immediate steps are taken to manage the transition, this collapse could usher in an economic catastrophe dwarfing the Great Depression. Therefore, those of us who know the truth must redouble our efforts to spread the ideas of liberty. If we are successful we may be able to force Congress to properly manage the transition by cutting spending in all areas and auditing, then ending, the Federal Reserve. We may also be able to ensure the current crisis ends not just the Fed but the entire welfare-warfare state.

Could this be why US stocks continue to surge? Could this be part of the Shanghai Accord?

Bloomberg Warns: Japan's Bond Market Is Close to Breaking Point

It's a curiosity to see some of mainstream media, whom were once cheerleaders for Abenomics, panic over growing dislocations at the JGB market.

While stocks have been surging, the Bloomberg recently warned on growing signs of instability in Japan's government debt (JGB) bubble: (bold mine)

Signs of stress are multiplying in Japan’s government bond market, which is crumbling under pressure from the central bank’s unprecedented asset-purchase program and negative interest rates.

Bank of Japan Governor Haruhiko Kuroda has repeatedly said his policies are having the desired effect on markets, including suppressing JGB yields. His success is driving frenzied demand for longer-dated notes as investors avoid the negative yields offered on maturities up to 10 years. And as buyers hang on to debt offering interest returns, the BOJ is finding it harder to press on with bond purchases of as much as 12 trillion yen ($106 billion) a month, sparking sudden price swings leading to yield curve inversions that have nothing to do with economic fundamentals.

“We hold a lot, and we’re not selling,” said Yoshiyuki Suzuki, the head of fixed income in Tokyo at Fukoku Mutual Life Insurance, which has $59 billion in assets. “We can get interest income. If we sell, there are no good alternatives.” The following charts show signs of stress in the market:

Yields on 40-year JGBs dipped below those on 30-year securities Tuesday, and a BOJ operation to buy long-term notes last week met the lowest investor participation on record. Bond market functionality has deteriorated, with 41 percent of respondents last month rating it as “low,” the highest proportion since the BOJ began the quarterly survey more than a year ago.

“It wouldn’t be surprising to see some BOJ operations fail,” said Yusuke Ikawa, a salesperson at UBS Group AG’s Knowledge Network in Tokyo. “The biggest risk of that is in superlong bonds.”

A dearth of liquidity has driven a measure of bond-market fluctuations to levels unseen since 1999.

“The market has gone from having extremely high liquidity previously, to the point where trading by investors can easily show up as volatility in yields,” said Tatsuya Higuchi, chief fund manager in the fixed income investment division at Mitsubishi UFJ Kokusai Asset Management Co. “There is a negative side to the BOJ’s bond buying.”

Demand for JGBs has increased so much since the start of negative-rate policy that it’s flipped the market for repurchase agreements on its head: Dealers who in normal circumstances would pay to borrow overnight cash in the repo market -- offering debt as surety of repayment -- are instead willing to pay to get access to the collateral.

Distortions in the market are poised to become even more pronounced, with almost 90 percent of analysts in Bloomberg’s most-recent survey predicting additional stimulus by the end of July.

The BOJ has already cornered close to a third of the JGB market, more than any other class of investor. That proportion will grow as asset purchases continue -- even without an expansion of easing.

The central bank is also buying negative-yielding bonds in the market, which has an overwhelming majority of the world’s sub-zero debt. The benchmark 10-year JGB yielded minus 0.09 percent on Thursday, after plunging to a record low of minus 0.135 percent on March 18. Positive yields on 40- and 30-year debt jumped about 10 basis points after the BOJ reduced the size of an operation to buy long-term bonds.

The market disruptions raise concerns that the BOJ is nearing the limits of its stimulus, even as Kuroda has said the central bank can do more. There are also questions over whether, if the central bank is forced to exit prematurely, the market can withstand the potential shock.

“How can the BOJ head for the exit?” Dan Fuss, vice chairman of Loomis Sayles & Co., said at an event in Tokyo last week. “If they open the exit door, there’s a fire on the other side.”

Truly awesome developments!!!

 

Typical political actions have been designed to address short term issues while disregarding long term consequences, so the mainstream only discovers now that "there is a negative side to the BoJ's buying". Duh!

It's just like the stampede by the average citizens to own home safety boxes and signs of increased demand for higher yen notes in response to negative interest rates. 

The mainstream is surprised to see people's different or opposite reactions from desperate government policies.

Of course, there is practically no limit to the BoJ's or any central bankers to employ 'stimulus'. If JGBs run out, then the BoJ's buying can spread to directly own equities (rather than just ETFs), corporate bonds, properties (home commercial) or even Ketchup (discussed here)! 

The BoJ can embrace Wall Street Journal's recommendation to "buy oil"! 

They can even use the nuclear option, instead of helicopter money, they can borrow US B-52s bombers to drop yen from the sky! But since cash will be disallowed, then the BoJ can send yen via postal mail (if no bank accounts) or credit every individual's bank accounts. In essence, the BoJ can create the yen at will!

It is not what the BoJ can do, but the effects of their actions that truly matters. 

In the economic spectrum, despite the deepening use of magic from monetarism, Japan has had FIVE recessions in the last SEVEN years. 

But for Japan's politicians, the real economy seems not the real concern. The BoJ appears to prioritize the financial markets, specifically, the JGB market and the stock market. And that's because they realize that once the 'animal spirits' dissipate, the government's access to credit will become hard to come by. 

And to consider Japan's debt position (as per 2016 budget) where about 25% of total budget is allocated for debt service and that debt service accounts for 41% of tax revenues--the loss of animal spirits will most likely translate to a debt-currency crisis!

So the BoJ wants to own most of the JGBs to prevent any volatility from overindebtedness. But in doing so, their actions have incited the current upsurge in volatility.

In the political spectrum, the BoJ's increasing ownership of the factors of production simply means nationalization of assets or increased embrace of or the slippery slope to socialism.

In the financial markets, the ongoing dislocations at the JGBs have spilled over to corporate bonds where default risks premiums have been surging as previously discussed here. 

The untoward effects from interventions only begets more interventions that leads to more unintended and increasingly more complicated consequences. And the mainstream gets surprised for unexpected outcomes.

Understand that these are not just technical issues, rather these are technical dynamics in reaction to the political response on Japan's structural political-economic problems. 

And rising stocks won't be able to conceal what has been going on (or the erosion of economic-financial foundations) for long. 

And if Japan's fixed income market unravels, global financial markets will suffer from a contagion.

 

Quote of the Day: Paying people to borrow money is just crazy; No Money Down Loan Philippine Edition

Sovereign Man's Simon Black on a 2008 Déjà vu bubble but at a larger scale: 

This feeling was only reinforced when I whipped out my phone and saw that German bank Berlin Hyp had just issued 500 million euros worth of debt… at negative interest.

I wondered if I really did go through a time warp, because this is exactly the same madness we saw ten years ago during the housing bubble and the subsequent financial crisis.

To explain the deal, Berlin Hyp issued bonds that yield negative 0.162% and pay no coupon.

This means that if you buy €1,000 worth of bonds, you will receive €998.38 when they mature in three years.

Granted this is a fairly small loss, but it is still a loss. And a guaranteed one.

This is supposed to be an investment… an investment, by-the-way, with a bank that almost went under in the last financial crisis.

It took a €500 billion bail-out by the German government to save its banking system.

Eight years later, people are buying this “investment” that guarantees that they will lose money.

The bank is now effectively being paid to borrow money.

We saw the consequences of this back in 2008.

During the housing bubble, banking lending standards got completely out of control to the point that they were paying people to borrow money.

At the height of the housing bubble, you could not only get a no-money down loan, but many banks would actually finance 105% of the home’s purchase price.

They were effectively making sure that not only did you not have to invest a penny of your own money, but that you had a little bit of extra cash in your pocket after you bought the house.

Paying people to borrow money is just crazy, whether it’s homebuyers, bankrupt governments, or banks.

Global insurance giant Swiss Re calculated that roughly 20% of all government bonds worldwide now have negative yields. And over 35% of Eurozone government bonds have negative yields.

(They would know—along with pension funds and banks, insurance companies are some of the largest buyers of bonds.)

With this deal, Berlin Hyp becomes the first non-state owned company to issue euro-denominated debt at a negative yield.

They won’t be the last.

We’re repeating the same crazy thing that nearly brought down the system back in 2008—paying people to borrow money.

The primary difference is that, this time around, the bubble is much bigger.

Back then, the subprime bubble was “only” $1.3 trillion.

Today, conservative estimates show that there’s over $7 trillion in negative rate bonds.

What could possibly go wrong?

I recently received a text message...

...which indicated of an offer for Philippine properties (high end condos for sale) financed by NO money down loan. So people are being "paid" to borrow money to buy Philippine properties. And that's how Philippine corporate sales and profits are being generated. And most importantly, that's the essence of the real estate-shopping mall propelled domestic demand boom: a credit bubble

Ironically, Mr. Black warned of this in 2014.

Boomeranging BoJ’s NIRP: JGB Circuit Breaker, Corporate Bonds and Bank Lending Slows as Cash Hoarding Accelerates!

In this terse post, I’d like to only discuss two things: one, the immediate unintended side effects of the Bank of Japan's (BoJ) NIRP, and second, the growing political divide over the imposition of NIRP.

Yields of Japan’s Government Bonds (JGB) shockingly collapsed yesterday to have forced the government to implement a circuit breaker or the suspension of trading activities for JGBs.

From Bloomberg:

Trading of Japan’s government bond futures for delivery this month was halted for less than a minute after the price of the contracts dropped as much as 0.6 percent.

The so-called dynamic circuit breaker started at 12:32 p.m. in Tokyo and only applied to March contracts for about 30 seconds Wednesday, according to Masaki Takahashi, who works in the market management department at the Osaka Securities Exchange.

The underlying benchmark 10-year bond tumbled Wednesday, pushing yields up eight basis points to minus 0.015 percent as of 2:51 p.m., according to Japan Bond Trading Co., the nation’s largest inter-dealer debt broker. Yields rebounded after dropping more than five basis points to a record minus 0.1 percent Tuesday.

Wednesday’s slide was partly driven by the results of the Bank of Japan’s bond buying operation, according to Takenobu Nakashima, a quantitative strategist at Nomura Securities Co. in Tokyo. Its bid-to-cover ratio for debt with 10 to 20 years to maturity rose to 3.58 from 2.93 last week, indicating stronger investor demand to sell.

It is important to highlight that with the BOJ holding 34% of the JGB market as of January 2016, shrinking market liquidity PLUS NIRP has been contributing to the current increase in JGB market volatility

Yields of Japan's 30 year bonds also crashed

Of course, the aim of the BoJ's previous Zero Interest Rate Policy (ZIRP) has been to bolster credit growth.

For the private sector this hasn’t been happening. To the contrary, credit growth has been materially slowing, notes the Japan Macro Advisors: (bold added)

In February 2016, the growth in the total bank lending in Japan slowed slightly to 2.2% year on year, down from 2.4% in January. The bank lending growth seemed to be on a deceleration path, having peaked in August 2015 at 2.7%.  

The sign of a slowdown is even sharper in bank deposits. It has decelerated from the peak of 4.6% in May 2015 to 3.1% in February 2016. The slowdown in deposits growth could be a reflection of a slowdown in the economy. In the quarterly published statistics, we see that the housing loan lending has been slowing since last summer. In the October-December quarter, new housing loans has grown negatively by -6.4% year on year.

With ZIRP being unable to fulfill what it had been designed for, the BoJ has doubled down to merge ZIRP with NIRP.

Unfortunately, stagnation in bank credit growth seems to be the initial outcome, since the NIRP took effect on mid February.

The corporate sector seem to be reluctant to issue bonds. Worst, credit risk has been rising on corporate bonds.

From Nikkei Asia (bold mine)

The Bank of Japan's negative rate policy is beginning to distort the way corporate bond rates are set.

Default risk premiums are rising even though the creditworthiness of issuing companies remain unchanged. This is because many companies prioritize keeping interest rates positive to rope in buyers.

With some companies becoming less willing to issue bonds, some market insiders are wondering if the corporate bond market will shrink…

However, the BOJ's negative rate policy has caused JGB yields to significantly decline, affecting corporate bond rates, too. In some cases, total interest rates are negative even if default risk premiums are added, making it difficult to attract buyers.

And more signs of distortions on Japan’s corporate bond market.

Interest rates on logistics company Nippon Express's five-year bonds and on seasoning maker Ajinomoto's seven-year bonds were decided based on an absolute level of interest rates. This method has become the norm when issuing bonds with maturities of less than 10 years now that yields on 10-year JGBs are negative.

That said, there is a problem in adopting an absolute level of interest rates. The corporate bond market's system of assessing a company's creditworthiness based on risk premiums could become dysfunctional…

In the secondary market, a strange phenomenon is taking place: The risk premium tends to be larger for corporate bonds with higher creditworthiness. That's because, with JGB yields tumbling, creditworthy companies are forced to set much higher premiums to keep their already-low bond rates positive.

As a result, the spread between premiums on higher-rated issues and lower-rated issues has narrowed, causing "creditworthiness-based yardsticks" to collapse and making it difficult for some investors to manage their portfolios.

More signs of NIRP backfire…credit growth diminishing not only in Japan but also in Europe:

Rising default risk premiums are making some companies less willing to issue bonds. One financial officer of a company listed on the first section of the Tokyo Stock Exchange is worried that an increase in premiums could deteriorate his company's loan terms. Default risk premiums on corporate bonds are an important factor when coming up with borrowing rates. Therefore, higher risk premiums could work to the disadvantage of companies when taking out loans in the future.

Bond issuances are on the decline in Europe, which adopted a negative rate policy ahead of Japan. The amount of corporate bonds issued in 2015 tumbled 20% from 2013, before the negative rate policy was adopted, according to U.S. market research company Dealogic.

With NIRP providing less income for financial services firms, as well as, security for depositors, the initial ramification has been for the both parties to withdraw from the system.

Money market funds, mutual funds and insurance pullback from providing services to consumers.

First money market funds, from another Nikkei Asia report: (bold added)

With negative interest rates making stable returns impossible to achieve, all 11 Japanese asset managers running money market funds plan to close them and return assets to investors, effectively ending a once-flourishing market.

Money market funds invest mainly in short-term instruments such as commercial paper and government debt carrying maturities of less than a year. Though principal is not guaranteed, these investment trusts have been considered safe. Japanese money market funds held 1.37 trillion yen ($12 billion) in assets Friday…

Money market funds were introduced in Japan in May 1992. Retail investors were drawn to their safety and higher returns compared with bank deposits. Total assets in money market funds peaked at 21 trillion yen in May 2000. But their popularity waned after the 2001 collapse of U.S. energy company Enron, which caused the money market funds holding its debt to drop below par value.

Next, mutual funds and insurance.

The impact of negative interest rates is spreading to other financial products. Returns have sunk below 0.02% for money reserve funds, mutual funds similar to money market funds with assets totaling more than 10 trillion yen. Because these funds serve as settlement accounts used in stock and mutual fund trading, returning customers' assets is difficult. Asset management companies can cover losses to keep their value above par but bear the cost of doing so.

Some life insurers are halting sales of products aimed at savers. T&D Financial Life Insurance will suspend sales of some single-premium whole-life policies March 16.

NIRP appears to be on path to destroy Japan’s financial system. 

Instead of ‘financial inclusion’, Japan financial system could be headed for atavism where unbanked people will swell. And by widening the chasm between savings and investments, the retrogression in Japan’s banking and capital markets will lead to lower standards of living which will likely be highlighted by a massive crisis (which will likely spread elsewhere)

And as the BoJ increases their share of JGBs, it means lesser private sector participation on the JGB market. 

From another Nikkei Asia article:

Because Japanese interest rates keep falling amid the BOJ's incremental monetary easing, foreign pension funds, as well as Japanese banks and pension funds, have been reducing their JGB holdings. This has increased the relative proportion of speculators in the market, making bond yields more susceptible to volatility.

This only means that the price function of JGBs has been rendered materially broken, thus the enhanced volatility. Yet the BoJ hopes to ingest a larger segment JGBs in order inflate away such unsustainable debt levels via the NIRP.

And as noted above, depositors have been withdrawing from the system

From another Nikkei Asia article

Japan's cash in circulation is growing at the fastest rate in 13 years as ripples from the Bank of Japan's negative interest rates push consumers' money out of savings accounts and into safes and other at-home repositories.

Japan had 6.7% more currency in circulation in February than a year earlier, the BOJ reported. That increase is the largest since February 2003, when consumers withdrew cash following changes to Japan's deposit insurance system. Particularly popular now are 10,000-yen ($88.25) bills, with circulating stock surging nearly 7%, the central bank said. The 5,000-yen and 1,000-yen bills have seen upticks of less than 2%.

The consumer shift from banks to home safes

Consumers increasingly find that keeping money in the bank is simply not worth the trouble. Large banks are paying a mere 0.001% interest on deposits -- 10 yen per year for an account holding 1 million yen. ATM fees and other charges would put many savers at a loss.

Instead, many are looking to safes to protect their money at home.

"Safes have really taken off since the negative-rate policy was announced," a worker at a major Tokyo home electronics retailer said. Fireproof models selling for around 50,000 yen are especially popular. Shimachu, a home goods chain based in Saitama Prefecture, reported twice as many safe sales now as a year ago. Commercial security provider Kumahira noted growing interest in safes from businesses as well.

Keeping cash in the home entails a higher risk of burglary. Sohgo Security Services said that requests for information on home security systems have risen 10-20% since the BOJ's negative interest rates took effect in mid-February, though the company admitted the cause of the increase is unclear.

The articles conclusion:

The central bank's negative rates are intended to push funds into consumption and investment -- not safes and mattresses, where they do nothing to stimulate the economy. Switzerland, a pioneer of negative-rate policy, apparently experienced similar unintended consequences: printing of 1,000-franc ($1,003) bills, the largest available, surged when rates dipped below zero.

Notice that much of the adverse reports came from Nikkei Asia, a mainstream media outfit that used to be the administration’s megaphone? Now the same firm appears to be pushing back hard on the BOJ’s NIRP as I have earlier noted here.

It’s a sign of a growing divide on NIRP by Japan’s establishment. It won’t be long where the BOJ may not just be kiboshed by the marketplace but by politicians as well. Such are growing signs of inherent barriers to the BoJ’s rampant inflationism. 

 

So far Japan’s stocks have partly recovered since the BoJ’s NIRP’s announcement.

The Nikkei was up 1.26% today, as part of the ongoing counter trend (bear market) rally.

The Nikkei has, so far, been short of reaching January highs when NIRP was announced. But volatility should be expected given the severe real world dislocations brought about by NIRP.

Nevertheless, people pulling their money out of the financial system will serve as a nasty headwind for Japan’s assets. That’s unless the average citizens will see stocks as a refuge. But if they do so, then NIRP will just blow another huge bubble from which will eventually implode and send even more people to scamper outside the financial system.

Yet the BoJ has positioned itself where there seems NO way out.

It’s sad to see how desperate central bank policies will lead to MORE societal hardships.