Futures in Japan face hangover from BoJ's bond-buying binge
Japan's $9 trillion bond market is bracing for disruption as a shortage of paper caused by the central bank's massive buying is expected to hit the settlement of derivatives used by investors and the dealers who underwrite the nation's debt sales.
Decades of fighting deflation drove the Bank of Japan (BOJ) into asset purchases and made it the majority owner of the country's national debt, with a balance sheet bigger than the $4 trillion economy and five times the size of the U.S. Federal Reserve's, relative to gross domestic product.
Participants say the bond's scarcity in the open market will interfere with buying the so-called 'cheapest-to-deliver' bonds to settle derivatives contracts at maturity, crucial for the market to trade smoothly and price with precision.
