The Japanese yield curve continues to flatten. Long duration yields are now at record lows. Their currency is up 10% since rates were taken into negative territory. And, finally, yields up to 13 year duration are now negative.
The Bank of Japan made a woeful mistake, thinking negative yields would spur inflation. The exact opposite has occurred. They thrusted negative rates onto an aging, saver, populous. The response has been records sales for home vaults and safes. People are embracing the deflationary vortex and the Japanese government do not know what to do.
The flight to safety intensified as crude tumbled after oil-producing nations failed to reach an accord to freeze supplies. The yen rose towards a 17-month high against the dollar after members of the Group of 20 nations signaled opposition last week to any efforts from Japan to directly halt the yen’s 11 percent climb this year.
“The yen’s appreciation in the wake of the G-20 meeting is putting the BOJ in a position where it has to do something,” said Genji Tsukatani, Tokyo-based fund manager at JPMorgan Asset Management Inc. “The JGB yield curve is flattening on views inflationary pressure is waning further, strengthening demand for super-long bonds. Investors are losing places to park money so they have to buy even as yields fall.”
Interesting times.
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The deflationary vortex is Japan’s rapidly declining and aging population. You can’t fix that with monetary or fiscal policy.