Arthur Hayes slams Bank of Japan’s bond unwind plan as buyers vanish

Arthur Hayes, co-founder of BitMEX, called out the Bank of Japan on Wednesday over its latest bond-buying retreat, warning that the central bank was heading for disaster.

“BOJ ‘bout to get Mike Tyson’d,” Arthur posted on X. “Every central wanker banker has a plan to raise rates until the bond market punches them in the face.”

According to Bloomberg, the warning landed as Japan’s debt market saw one of its most volatile weeks in years, with auctions falling flat, yields spiking, and big institutional buyers staying on the sidelines.

The fallout started when the BOJ reduced its bond purchases again, leaving the market to swallow a growing pile of supply. The 20-year bond auction held Tuesday attracted the weakest demand in over a decade.

This comes right as central bank officials began a two-day closed-door meeting with banks, brokers, and investors to hear views on tapering. There’s no clear agreement on the right pace, and things are already unraveling.

Prime Minister Shigeru Ishiba said publicly that Japan’s financial situation could start to resemble Greece’s if policy missteps continue. The bond market took that seriously, and so did investors.

Yields climb as demand dries up

The worst of the pain hit the long end of the curve. Life insurers, usually big buyers of ultra-long debt, pulled back hard. James Malcolm, a macro strategist at UBS based in London, said after the Tuesday auction, “There’s almost a buyers’ strike in the back end of the curve. And on top of that, the political situation is fragile, and there’s more pressure for fiscal spending.”

Yields on 20-year notes spiked by 15 basis points in Tokyo, reaching their highest level since 2000. 30- and 40-year yields pushed even higher, breaking new records.

The BOJ’s long campaign of heavy bond buying left it holding more than half of Japan’s government debt, and now that it’s stepping back, that debt has to go somewhere.

But the market isn’t ready. Bloomberg reported that net bond supply — factoring in redemptions and BOJ purchases — is at its highest point since at least 2010.

Meanwhile, Japan’s Ministry of Finance is still planning to sell 40-year bonds on May 28. The problem is that traders are also watching rising US Treasury yields, which are feeding into Japan’s market.

All of it adds pressure on the BOJ ahead of its next big policy meeting scheduled for June 17. Investors say that if the current tapering pace continues, the central bank might lose control of the yield curve altogether.

On the stock side, traders are also reacting. Kazuhiro Sasaki, head of research at Phillip Securities Japan, said on Tuesday, “Prime Minister Ishiba has said issuing more bonds to fund the budget is unacceptable, but there doesn’t seem to be a consensus on economic measures.

The economic situation is quite uncertain.” There’s also trouble coming from outside the country. Donald Trump’s “Liberation Day” tariffs are still in effect, and Japan is stuck in trade talks with the US, trying to get those tariffs lifted.

BOJ hears mixed views as tapering plan divides market

The BOJ’s plan to trim bond purchases by ¥400 billion ($2.8 billion) per quarter would drop their monthly buying down to around ¥2.9 trillion in early 2026. But that timeline now looks shaky.

During this week’s meetings, market participants gave the BOJ wildly different feedback. Some, especially local banks and insurance companies holding huge bond positions, pushed for a slower pace. Others, including some megabanks, wanted the BOJ to step away faster.

That divide was on full display by Wednesday when the BOJ brought in asset managers for another round of talks. According to a participant, some of the biggest insurers and pension funds raised direct concerns about the jump in super-long yields. They’re now pressing for action.

The backdrop is tense. The country’s biggest banks just posted record profits for the fiscal year ending March, thanks to fatter loan margins driven by rising interest rates. But even they don’t agree on what the BOJ should do next. The central bank is stuck trying to manage rising market stress, political division over fiscal strategy, and an economy that shrank again in the first quarter.

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