With volatility at record lows...

The Japanese bond market remains paralyzed with trading volumes hitting record lows as private bondholders no longer dare to even breathe without instructions from the central bank.

Gross purchases of JGBs by investors dropped 22% to 12.6t yen ($115.1b) in July, the least since May 2016, according to the latest data from Japan Securities Dealers Association Monday. On a rolling 12-month average basis, the volume was at an all-time low.

As far back as 2014, traders were warning that Japan's bond market is dead... and so is its stock and FX markets...

The Bank of Japan’s unprecedented asset purchase program has released a creeping paralysis that is freezing government bond trading, constricting the yen to the tightest range on record and braking stock-market activity.

...

“All the markets have been quiet,” said Daisuke Uno, the Tokyo-based chief strategist at Sumitomo Mitsui Banking Corp. “We’ve already seen the BOJ dominance of JGBs since last year, but recently participants in currency and stock markets are also decreasing as those assets have traded in narrow ranges.”

...

“The flows on both the buying side and selling side continue to fall,” said Takehito Yoshino, the chief fund manager at Mizuho Trust & Banking Co., a unit of Japan’s third-biggest financial group by market value. “Falling volatility is a very serious problem for traders and dealers who are unable to get capital gains.”

And now, as more market participants throw in the towel on a rigged, centrally planned market, the result will - no could - be a further loss of market function, and a guaranteed crash once the BOJ and other central banks pull out (which is why they can't). As the Nikkei politely concludes,

"if the bond and money markets lose their ability to price credit based on future interest rate expectations and supply and demand, the risk of sudden rate volatility from external shocks like a global financial crisis will rise."

Translation: in a world where only central banks trade, everyone else is destined to forget forget what trading, and certainly selling, means.