The simplest answer is that, regardless of the real-money sellers, there's one ginormous buyer of JGBs, in unlimited size. That buyer, in order to buy them Jay-Gee-Bees, will need to "sell" large amounts of JPY.
True, but it's also the case that the only main scenario that keeps JGBs up is continuation of the status quo. I think almost all other scenario involve JGBs falling a little to a lot. Not sure same can be said for JPY?
I'm probably being too simplistic: either they are on a path to normalisation (little JGB fall due to inflation) or crisis (large JGB fall due to extreme inflation or capital flight). or they just muddle through for a while more yet...
Sure, but wouldn't you agree that in the crisis scenario (which is the interesting one), JGBs might actually not fall a lot because the BoJ will be buying them in unlimited amounts?
Yes that's possible I agree. I just wonder about the crisis-scenario endgame? How do you solve a crisis created or at least popularly associated with infinite QE - as the QE amounts get larger and larger in that scenario and the JPY gets crushed... Eventually the QE has to stop for any sort of stability to assert itself. The stability at that point would come only from stopping QE and accepting eventual default/worthlessness of JGBs. Maybe that's too extreme though...
Let me suggest a possible crisis endgame for you. Suppose QE is infinite, like you mention, and the time comes when, eventually, the BoJ owns the entire outstanding stock of JGBs (which were paid for by printed JPY). At that point, the BoJ declares JGBs worthless and burns them. In this case, the private holders of JGBs never experience the worthlessness of their JGBs (only the ccy suffers). The reason I bring this up is that Japan has done this already in the past. Takahashi Korekiyo during the 20s presided over policies that were somewhat similar.
What makes the end game so interesting regarding Japan is that all the scenarios end up at extremes. Call it what we will, effectively, the way out involves jettisoning the debt and, in effect, is a bankruptcy. We are seeing the effects of a xenophobic society that could not tolerate immigration to bring down the average age. Past a certain median age consumption drops and unlike in a recession it never comes back ... consumers simply age out and it results in less consumption. Coming at a time when other exporters are rapidly climbing the curve to more sophisticated manufacturing it means they are fighting a two front war. Nations forced to fight two "big" wars at the same time historically lose them both.
Thank you for your contribution Martinghoul. Your post reminds me of this Zero Hedge article: http://www.zerohedge.com/news/2013-...-hills-japan-central-bank-own-100-gdp-5-years It also reminds me of some of the Modern Monetary Theory crowd who focus only on JGBs ("They won't have a bond market crash because they can print Yen") but ignore the potential for a currency crisis. Also it's important to remember how useful gradual inflation can be for net borrowers. 10.5% inflation for 7 years will cause a doubling in the price level over that period. So although it's useful, hyperinflation is not a necessary condition to lose substantial amounts of purchasing power.