As we reported around midnight ET, the Bank of Japan has now committed to completely controlling the yield curve and has also committed to “overshooting” its 2% inflation target.
While the results of the bank’s monetary policy “review” might have been “underwhelming” as far as markets go, the idea of explicitly and completely manipulating the curve is a bit disconcerting and lends credence to the widely held belief that Japan will be ground zero for some kind of catastrophic meltdown when the music finally does stop on the greatest policy experiment the world has ever seen (we’re all guinea pigs).
One of the questions often asked is what happens to central banks when they accumulate trillions in negative yielding debt? Do they end up going broke? Well, technically yes. Here’s a chart from Barclays which shows you the projected losses.
So, as you can see, the projected losses are greater than the banks entire capital base.
And that’s just on the JGBs they hold. One can only guess at what the losses would be should the stock market crash and tank the value of their gargantuan ETF portfolio.