How central banks destroy the financial system

US, WASHINGTON (ORDO NEWS) — The Bank of Japan in April became the largest buyer of Japanese corporate bonds – for the first time since June last year, Bloomberg reported.

Thus, the intervention of the Japanese regulator in the life of the financial market is becoming more significant. He actively buys government bonds, in fact, monetizing the country’s national debt.

The Bank of Japan is almost the largest shareholder of Japanese companies, buying up their securities through exchange-traded funds. Judging by the Bloomberg report, the Central Bank is also seeking to take on the debt risks of the country’s enterprises.

On the whole, the policies of the largest central banks are increasingly destroying the principles of market mechanisms. Over the past ten years, the concept of investment risk has been very distorted.

For example, if the Federal Reserve includes a printing press, liquidity increases and the risk premium for bonds of even not the most reliable companies becomes very low.

However, now the situation is even worse. As you know, the same Federal Reserve buys corporate bonds through the purchase of ETF funds HYG and JNK. Thus, the US regulator became the owner of the bonds of the just-gone-out car rental service – Hertz. If earlier the purchase of bonds by the Fed was a “bullish” signal, now it is not such a signal.

Thus, the opinions of various exchange experts and analysts are now becoming less and less significant, since fundamental or some other factors no longer play an important role when working in financial markets.

This particular case once again emphasizes that it is not worth making hasty conclusions and buying those bonds that are acquired by central banks. Their actions are more and more like trying to stop the explosion of the financial “bubble”, which was initially inflated without regard to the possible consequences.


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