BOJ Faces $200 Billion Hit If It Loses Control of the Curve
- Hedge funds short bonds in bet on unlikely shift in policy
- Japan’s central bank owns about half of all government bonds
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The Bank of Japan would face a huge loss on its super-sized holdings of government bonds if it were to buckle under ever greater market pressure and abandon its easy monetary policy as hedge funds rush to short the debt securities.
Thanks to its quest to boost prices in deflation-prone Japan, the BOJ now owns 526 trillion yen ($4 trillion) of government bonds -- almost half the total -- an amount that rivals the size of the economy. As an increasing number of investors question how much longer the central bank can stick to its ultra-easy stance, traders will keep a close eye on its policy announcement Friday and comments by Governor Haruhiko Kuroda.