ML-Implode News - The IMF Just Confirmed The Nightmare Scenario For Central Banks Is Now In Play (GROUND ZERO: JAPAN)

The IMF paper, which notes that in Japan, where there is a limited securitization market, the only "high quality collateral" assets are JGBs, and as a result of the large scale JGB purchases by the JGB, "a supply-demand imbalance can emerge, which could limit the central bank's ability to achieve its monetary base targets ``... at the current pace, [the BoJ] will hold about 40 percent of the market by end-2016 and close to 60 percent by end-2018. In other words, beyond 2016, the BoJ's dominant position in the government bond market will be unprecedented among major advanced economies.''
This... is precisely what we warned yesterday would be the outcome: "the BOJ will not boost QE, and if anything will have no choice but to start tapering it down - just like the Fed did when its interventions created the current illiquidity in the US govt market - especially since liquidity in the Japanese government market is now non-existant and getting worse by the day."
... When considering that by 2018 the BOJ market will have become the world's most illiquid (as the BOJ will hold 60% or more of all issues), the IMF's final warning is that "such a change in market conditions could trigger the potential for abrupt jumps in yields."

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The IMF Just Confirmed The Nightmare Scenario For Central Banks Is Now In Play (GROUND ZERO: JAPAN)