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Japan has reached a state of QE singularity: Not a Single Japanese 10-Year Bond Traded Tuesday.

No buys. No sells.

Barclays Securities Japan rates strategist Naoya Oshikubo, summed it up, with perhaps an understatement: "the JGB market was generally thin."

Ridiculous Comment of the Day

"The upside for the BOJ is that with such little going on in the market, it makes it easier to control the yield curve, with less need for intervention."

No need for intervention? Excuse me, how is that not 100% intervention?

The Bank of Japan is an unlimited buyer at 0.11%. If the yield on the ten-year bond rose to 0.12% the Bank of Japan would rush in and squash the move.

What's the Message?

  1. That Japan cannot take interest rates higher that 0.11%?
  2. That 1 basis point on 10-year bonds matters?
  3. That Japan cannot destroy it's currency after years of trying?
  4. All of the above?

I Can Help!

I offered these suggestions in Note to BoJ: Try Something Different or Look Perpetually Foolish.

Japan should stop mickey mousing around and buy all of the bonds. However, there may be reluctant sellers. After all, 0.11% for 10 years must be extremely attractive.

To make 0.11% less attractive, all Japan has to do is tax bondholders 1%. Bondholders would dump their bonds immediately, if not sooner, and the Bank of Japan would own 100% of them within a day.

I suggested the same thing on April 22, 2016, in Mish’s Sure Fire Proposal to End Japanese Deflation: Negative Sales Taxes, 1% Monthly Tax.

Mish’s Four Pronged Proposal to End Japanese Deflation

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​My Price

My price for this amazing plan is $0. It’s free for the taking.

Yet, zero seems woefully inadequate for such a brilliant plan that is absolutely guaranteed to work, especially when Japan has tried and failed for decades to produce inflation.

Thus, if offered, I will graciously accept $1,000,000 for each one-tenth of one percent rise in Japanese inflation if Japan simply follows my plan.

MMT Test

After the BOJ corners 100% of the bond market, it can cancel the public debt declaring it null and void. After all, the BOJ would truly owe the money to itself.

Next, Japan could hand out enough free money so that all private and corporate debt is cancelled as well.

This would be an excellent test of the MMT theories "we owe it to ourselves" and government spending does not matter.

Nirvana?

With the Bank of Japan in perfect control, the Japanese economy ought to be humming. So why isn't it?

Something seems to have gone seriously wrong with QE.

The US is on the same path.

Don't worry. Europe is sure to beat us to the door.

Mike "Mish" Shedlock