NIRP Kills Off All Money Market Funds in Japan

And the Bitter Irony?

All 11 Japanese asset managers that offer money market funds have stopped accepting new investments into them and are planning to scuttle them after returning their remaining assets to investors. This marks another big accomplishment of negative interest rates.

After years of zero-interest-rate policy, and after gobbling up every Japanese government bond that wasn’t nailed down, the Bank of Japan decided in January to go beyond what had already failed and introduced its negative-interest-rate policy.

As a result of QQE, as it calls its asset-buying program, and the new NIRP, even the 10-year JGB yield is now negative, and yields on shorter maturities are sinking deeper into the negative. Money market funds, which invest in commercial paper and government debt with maturities of less than one year, are at risk of seeing these negative yields eat into their principal.

Money market funds, unlike bank deposits, do not guarantee the principal, but due to their reliance on short-term paper with high credit ratings, they’re considered one of the safest investments, and falling below par value is considered bad form and can trigger runs on the offending fund and neighboring funds by spooked investors.

With an average yield of a record low 0.02% currently – only a hair away from going negative – money market funds are at the verge of systematically falling below par value, not just once, but deeper and deeper, given that the current monetary policy could last for years, or until something big breaks.

Fund managers could absorb the losses, but that’s no fun either. So they’re drawing the line:

The Nikkei:

Nomura Asset Management and Daiwa Asset Management intend to repay investors by August and October, respectively. Mitsubishi UFJ Kokusai Asset Management is preparing to do so in April or May. Five other companies, including Nikko Asset Management, had announced plans as of Monday to return customers’ money.

Money markets used to be popular among retail investors in Japan. During their heyday in May 2000, according to the Nikkei, assets peaked at ¥21 trillion ($186 billion at today’s exchange rate). But Japan’s zero-interest-rate policy at the time had pushed funds to venture into US commercial paper to get some visible yield, including Enron debt. When this debt collapsed, funds that held it fell below par; what was once considered a nearly risk-free investment was teaching a lot of folks some lessons.

And they began pulling their money out. By the end of last week, assets were down to ¥1.37 trillion, or a measly $12 billion. Now NIRP is finishing off what ZIRP has started.

And money market funds aren’t the only victims of NIRP. The Nikkei:

The impact of negative interest rates is spreading to other financial products. Returns have sunk below 0.02% for money reserve funds, mutual funds similar to money market funds with assets totaling more than ¥10 trillion. Because these funds serve as settlement accounts used in stock and mutual fund trading, returning customers’ assets is difficult. Asset management companies can cover losses to keep their value above par but bear the cost of doing so.

Some life insurers are halting sales of products aimed at savers. T&D Financial Life Insurance will suspend sales of some single-premium whole-life policies March 16.

The bitter irony? Retail investors seeking safe investments, so to speak, with a nominally positive if barely visible yield are running out of options. They’re being pushed further into the arms of their loving government that concocted this situation in the first place:

Retail investors with narrowing options are seeking products that guarantee better returns. A February auction of Japanese government bonds aimed at individuals drew ¥233.5 billion in bids, up ¥57 billion from a month earlier and the most in 19 months. The notes’ 0.05% yield at issuance is higher than the 0.01% return on time deposits offered by major banks.

The Bank of Japan has already killed off the formerly vast JGB market, where trading has slowed to a trickle. Now the primary dealers buy the huge piles of negative-yielding debt from the government when it issues them and then turn around and sell these piles to the BOJ at even more negative yields, pocketing the difference, thus making a guaranteed profit on these otherwise money-losing instruments.

The BOJ in turn is funding the government deficit by buying up all the new paper. It’s also buying big chunks of the accumulated debt. And now it’s paying the government interest on that acquired debt via the mechanism of negative yields, which drives the whole scam to a new level of absurdity.

But wherever central banks have inflicted negative interest rates on the land, banks are trying to figure out how to dodge them. In Germany this has taken on a new form. Read… It Begins: Palace Revolt against ECB’s NIRP

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  16 comments for “NIRP Kills Off All Money Market Funds in Japan

  1. Markar says:

    Poor Japanese sheeple! Running to JGBs at .05% is like picking up pennies in front of a steam roller. They should be buying gold and silver hand over fist with their hard earned cash.

  2. Mad Max says:

    Great article. Japan is fast approaching monetary policy endgame. I hope Europe is paying close attention.

    • NotSoSure says:

      Fast? So funny. Lots of traders have been carried out in body bags trying to time the so called “fast approaching monetary policy endgame.”

  3. OutLookingIn says:

    Zero or negative rate of return is unnatural.
    Imagine being mugged and shot by a robber. Then having to reimburse the mugger for the cost of the ammunition used and the perp gets to keep your money! Ridiculous in the extreme.

  4. Mr reality says:

    Strange how the letter i is not coming out in the comments.

    World, meet Japan, you will experience the Japanese reality shortly

    Mr R

    • Wolf Richter says:

      I updated the software that runs the comments a little while ago. I wonder if that’s the problem.

      I can see the i’s on my side. But I can’t see them under the article.

  5. Chicken says:

    Seems like a sweet deal, they should eliminate corporate and private income tax, just monetize government funding.

    It’s the new normal?

  6. d says:

    Japan has always been a Main-street cash society.

    I see a strong demand for physical cash coming in japan, as well as the Japanese everyday citizens chasing hard assets again.

    ANZAC property is just about to get a huge new cash flow injection.

    A lot of it will come here as they have experience in the market.

    At least they have more manners, than the mainland chinese, and dont leave their property’s vacant..

    • d says:


      The fund managers obviously have good info from BOJ and MITI that this is not a five minute position, at least in japan.

      Japan Inc, looks after Japan inc.

  7. r cohn says:

    Here are some things that I never understood.The BOJ is buying up the government debt.Where does it get the money to buy the debt.?It prints it with a computer keystoke.In essence one part of the government is funding the rest of the government via IMAGINARY money .Japan has reached the point where EVERYONE knows that the bonds can never be paid off except by continuing the same cycle with IMAGINARY money .So what is to stop the government from running increasingly larger deficits.AT this point,there is in essence no difference between running deficits of %30 of GDP and running deficits of %500 of GDP because there is NO CHANCE that the bonds will be paid off in EITHER situation except via a computer keystroke
    Two questions
    1.Why has the YEN not crashed
    2.Why have the primary dealers.
    3.What is to prevent the government/BOJ from buying up ALL assets

    • alexaisback says:

      5. Why on earth sell US Treasuries to Japan in exchange for worthless currency ?

      Japan owned $1.2244 trillion worth of U.S. government securities at the end of February 2015 , compared to $1.2237 trillion for China.
      Japan is bankrupt. Just one example Fukishima. They not only cannot afford to fix it, they do not have the technology to fix it.

      It is a trillion dollar issue if you even desired to attempt to put a price on it. The ” answer ” – let it leak radiation indefinately and who cares if citizens die that is their obligation to the State.

    • d says:

      “In essence one part of the government is funding the rest of the government via IMAGINARY money .”

      Wolf is good to deal with, so I will be nice.

      I knew the BOJ was not state owned, the above links are simply the most expedient manner of proving it.

      Best learn the “Basic Facts” before spouting about the BOJ and the Japanese financial systems, which, clearly, you, know nothing, about.

      1.Why has the YEN not crashed.

      The yen has not, and will not crash, as the pension funds and Japanese people are fighting the BOJ for the availability of yen Treasury’s. More chance of $ US crashing than Yen.

      Effectively the Government debt of japan is 100% held by the Japanese people. So it is not really an issue, how large the state debt becomes, as long as the people are happy with the situation.

      Stupid nations borrow in foreign currency, and from foreign nations.

      Argentina, then, Look at greece, over 85 % of greek debt is held by foreigners.

      Wealthy greeks put their money anywhere, but in greece, or greek institutions, poor greeks put their Euros under the floor boards, as greeks know these “institutions” are bankrupt.

      3.What is to prevent the government/BOJ from buying up ALL assets

      Deposit ratios, BOJ rarely buys, obviously bad assets.


      Retail customers have been subject to NIRP for decades, on low and non interest bearing accounts. It just wasn’t described as NIRP.

      NIRP is being applied to bank accounts at the CB, as banks have to much interest bearing cash sitting at the CB’s. They are/were, effectively milking the CB, with their self created excess liquidity.

      This publicly Announced NIRP at the CB is driving down rates and yield on Treasury’s. Good for the State.

      It will soon drive up retail Loan Interest rates, as bank margins are being squeezed on loans, by the size of the -% rate at the CB. And cause banks to hold more cash themselves, or with each other, instead of paying to deposit/hold it, at the CB.

      If you understand what is happening, NIRP is BIG noise about Nothing. It has been usefully used to jawbone currency rates through FUD and Ignorance, but as BOJ proved, its effects now last only for days, if they are lucky. A lot of Japanese, insider traders, made good short term gains in the BOJ NIRP announcement trade

      Check the Yen/CNY rate moments before and over the BOJ NIRP announcement and following days. Just another short term CB jawbone dump.

      Looking for a problem, look at PBOC, and chinese state, Muni, and in generall, chinese NPL’S, formal and shadow.

      Then try and figure out how much debt the State has moneytised with clandestine physical CNY printing.

      The Physical CNY circulation numbers, are under-reported by probably 100’s of %. If not thousands.

      PRC china is now exchanging defaulting, state, company, and muni, loans and bonds, for new State guaranteed bonds. Compounding the due interest into the value of the new long term bond. Effectively blowing another NPL bubble.

      But Japan is the Global Banking problem.

      And Pigs F^&*()g fly.

      • r cohn says:

        The stats coming out of China are to stay the least questionable,so I will not even attempt to discuss that country’s current actions.

        .The BOJ does not need to buy OBVIOUSLY BAD ASSETS.They just need to buy ETF’s /equities.And the BOJ has been buying ETF’s’ for quite some time.Last time I looked stocks had an inferior claim to bonds.
        You cite the deposit ratio .What is the deposit ratio determining how much stock ,etf’s the BOJ can buy

        There is no logical reason to have dealers ,if all they do is act as middleman,who take no risk

        Your argument that it does not matter how large the state’s debt becomes as long as they own it %100 themselves and the people are happy is hardly a new one.But lets take it to its logical extreme .Instead of running a deficit of %7.7 as it did in 2015,why not run a deficit of say %900 in 2016..The government would sell all of the bonds to the BOJ and the people would be happy with more money in the economy.And because they would own all of their debt,there would be no implications for the YEN?

        DE JURE,you are technically correct ,the BOJ is privately owned.De Facto the BOJ acts as nothing more than an enabler for government policies .The current law ,article 4 ,states
        ” in the recognition of the fact that currency and monetary control is a component of overall economic policy ,the Bank of Japan shall ALWAYS MAINTAIN CLOSE CONTACT with the government and exchange views sufficiently,so that its currency and monetary control and the basic stance of the governments economic policy currency shall be mutually harmonious.
        In the US,the Fed is owned by its member banks. Its employees are NOT civil service workers.But all of governors are appointed by the President and confirmed by the Senate.The Fed is required to send all of its profits to the Treasury and its representatives are required to appear before Congress.It was created by an act of Congress and as such can be altered ,dismantled or nationalized by an act of Congress and the President’s signature.

        And if you are disagreeing with my term imaginary money ,what would you call it?

        • d says:

          The BOJ is not state owned you said it was and got called. All CB’s work in the interests of the state to some extent unless you look at Venezuelan where the CB works for the Socialist administration, not the nation.

          The Japanese have been running an economic experiment since the 1970’s when muslim terrorist with genocidal intent, turned oil into a weapon.

          The thing to do which the ECB in particular has not done is observe and learn.

          The chinese and other have copied some thing the Japanese have tried as they have been found to work.

          A lot of economic and revolutionary cycles last around 250 -350 years.

          It is most annoying that the Americans interfered with Tokugawa when they did it was just getting to the point where results could be observed for future models.

  8. Alf says:

    R Cohn: you are not the only one wondering. Had a young economist just out of university claim that income tax was not necessary; all the Federal banks had to do was print the money? Never a question about the true nature of capital or how wealth was created. Seems as if there is no difference between wealth and money. Hard to believe that people actually believe that wealth can be created with a printing press. Alf

  9. Joe Lalonde says:

    Would be nice if negative interest paid for your credit card and sent you a check back…
    Just a thought.

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