Japanese Stocks Tumble After BoJ Bond-Buying Operation Fails For First Time Since Abenomics

Having rotated their attention to the T-bill market in Japan (after demand for the Bank of Japan’s cheap loans disappointed policymakers) in an effort to ensure enough freshly printed money was flushed into Japanese markets, the BoJ now has a major problem. For the first time since QQE began, Bloomberg reports the BoJ failed to buy all the bonds they desired. Whether this is investors unwilling to sell (preferring the safe haven than stocks or eu bonds) or that BoJ has soaked up too much of the market (that dealers now call “dead”) is unclear. Japanese stocks – led by banks – are sliding as bond-demand sends 5Y yields (13bps) to 18-month lows.

Umm, Tokyo, we have a problem…

Bank of Japan bought 2.62t yen ($25b) of Japan’s treasury-discount bills from financial companies today, compared with the 3t yen that the BOJ offered to acquire.

This is the first time the central bank failed to meet its purchase target for t-bills since at least April 2013, when Governor Kuroda stepped up quantitative easing

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Markets are not happy – Nikkei is 300 points off today’s highs…

led by banks collapsing to 18-month lows

and bond yields are sliding

and the yield curve flattens

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And remember, the Japanese bond market (the largest in the world) is now “dead” according to dealers:

The Bank of Japan’s unprecedented asset purchase program has released a creeping paralysis
that is freezing government bond trading, constricting the yen to the
tightest range on record and braking stock-market activity.

…

“All the markets have been quiet,” said Daisuke Uno, the Tokyo-based chief strategist at Sumitomo Mitsui Banking Corp. “We’ve
already seen the BOJ dominance of JGBs since last year, but recently
participants in currency and stock markets are also decreasing as those
assets have traded in narrow ranges.”

…

“The flows on both the buying side and selling side continue to fall,”
said Takehito Yoshino, the chief fund manager at Mizuho Trust &
Banking Co., a unit of Japan’s third-biggest financial group by market
value. “Falling volatility is a very serious problem for traders and
dealers who are unable to get capital gains.”