A ¥9 Trillion Hole Emerges Inside The BOJ's Balance Sheet: "It’s A Pretty Dangerous Situation" | WHAT REALLY HAPPENED


A ¥9 Trillion Hole Emerges Inside The BOJ's Balance Sheet: "It’s A Pretty Dangerous Situation"

When it comes to accounting conventions, the Fed and the BOJ differ in one major way: unlike the Federal Reserve, the BOJ counts its bond holdings at the purchase price, minus amortization costs. In the old days before NIRP this wasn't an issue because with positive yields, it meant that with time, the value of any central bank bond purchases would accrete through maturity and never lead to a booked loss; however under NIRP, it means that the BOJ is purchasing hundreds of billions in bonds at prices that are so high they guarantee a loss, meaning that by maturity the central banks will face a cumulative loss on the face value of recent bond purchases.

From a purely accounting standpoint, it means that a gap has opened on the BOJ's balance sheet, representing the difference between the book and face value of the central bank's monetizations.

How big is the gap? According to Bloomberg as of August, the delta between the balance sheet and face value has ballooned to some 8.7 trillion yen, or $84 billion.

Webmaster's Commentary: 

Considering how banks and economies are so closely interlinked, this gap could well create a tsunami effect with other countries' economies as well.

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