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Thanks to the Fed’s ability to monetise the debt, to some extent all US bonds are backed by the printing press, but it’s never explicit.Last night news broke that Japan would issue rebuilding bonds worth 10 trillion yen, and it sounds as though they’ll specifically be backed by the BoJ.
We’re eager to hear from anyone who knows whether this is precedented.
Here’s Citi’s Steven Englander describing the news:
…overnight the Sankei Shinbun newspaper reported that the Japanese government will issue “restoration bonds” to the tune of JPY 10 trillion or more and ask BoJ to accept them. The BoJ is prohibited to directly underwrite government bonds by law. However, the Sankei cites the public finance act 5th article, which can allow BoJ to underwrite under special circumstances with the Diet’s approval. At this moment I am not sure the Sankei is right or not, but please note that the Sankei is a right wing newspaper which has a strong relationship with the Japanese opposition party – LDP. Needless to say, if the Japanese government and DPJ want to decide a large and prompt fiscal package to cope with the national disaster, the LDP’s support is vital. If LDP is having a potential plan regarding BoJ’s underwriting of “restoration bonds” we cannot ignore the possibility of it.