The Bank of Japan's bond-buying may have helped killl of trading activity. But ultimately the euthanasia of trading desks is a consequence of a stagnant economy
, nearly twice the share held by the European Central Bank and nearly four times that of America’s Federal Reserve. Theholds almost half of Japan’s sovereign bonds . These have largely been bought from commercial banks—both domestic ones and foreign lenders based in Japan. In 2012 banks owned over 40% of the stock of government bonds; now they own less than 13%. Since they typically do a lot of bond trading, it might come as no surprise that activity has dried up like a dammed stream.
To its critics Japan’s experience of bond-buying as the main form of economic stimulus discredits the policy tool. The huge asset purchases since 2012 have clearly not achieved the aim of generating sustained inflation. Even theYet there also seem to have been few of the negative market consequences that critics feared.
The lack of any direct financial consequences of throttling activity in the bond market says something interesting aboutand monetary policy in general. Policy is usually regarded as being something that causes changes in the economy. But it is as much a consequence of existing economic reality. Movements in bond markets typically convey useful information about investors’ expectations for growth and inflation. But in Japan both are so consistently low that there is little useful information to be gleaned from a livelier market.
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