The Japanese bond market seriously suffered from the actions of the country’s central bank. Recently, there was a session when not a single deal was made on 10-year government bonds. Within its stimulus program, the Bank of Japan purchased 40 percent of outstanding bonds in the market. Big players of this market, such as pension and insurance funds, also buy and hold bonds, so that other participants simply have no chance of buying securities. Only the central bank wins in such a situation as now it is way easier to control the yield curve.
According to Bank of Japan Governor Haruhiko Kuroda, the central bank has bought back 75 percent of government bonds this fiscal year. The official considers the condition of the debt market positive, naming it stable. Actually, he is right: the debt market is dead. What can be more stable? This shows once again how strong the influence of central banks on the financial system is. Amid complete absence of liquidity, Kuroda announces their readiness to make a smooth exit from its ultra-loose monetary policy. Another example of such an impact is the US debt market, where significant sell-offs took place at the beginning of the year, while the greenback was weakening.
