Slightly wearying, all this see-sawing in Japan. The Nikkei fell more than 6 per cent at one point on Thursday, though it had rallied a bit at pixel time. Still heading towards bear territory.
Some Nikkei investors spotted leaving the scene on Wednesday: Read more
It’s hard to escape the effects of demographic determinism.
Japan appears very keen to give it a shot, but aside from policymakers taking a disturbingly direct hands-on approach, their choices are somewhat limited.
From Credit Suisse: Read more
The Nikkei was up 4.9 per cent at 13514 during the official Tokyo session, rising towards 13700 during after hours trading; the Topix was up 5.2 per cent and the yen 1.1 per cent weaker at Y98.6. Sigh… Read more
That’s the yen on the left hitting Y99.69 at pixel and the Nikkei, right, having lost nearly half of its speedy 2013 gains since May 22 (click to enlarge):
A disgusted Shinzo Abe appears after the break…
Who knows. But we can report that this report, from Reuters, caused a sharp trend reversal in Japanese equity futures on Thursday accompanied by a sudden weakening of the Yen.
That’s the Nikkei off 5 per cent on Thursday morning, its biggest fall since last week’s 7.3 per cent hit:
Both the Nikkei and the boader Topix have lost around 13 per cent in local currency terms since hitting peaks last week: Read more
The daily attempts of Bank of Japan and Japanese government officials to calm volatile equities/yields/yen is becoming dizzying. For Kuroda in particular it must be exhausting. The poor guy is everywhere.
Still, Tuesday’s efforts saw the Nikkei up 1.2 per cent and the yen down 1.2 per cent against the dollar and above Y120. However, Japan’s 10 and 5 year yields headed back above 0.9 per cent and 0.4 per cent respectively: Read more
Nomura’s Richard Koo put out a note on Tuesday reacting to the rise in JGB yields since the Bank of Japan went into QE overdrive that seems worthy of some attention.
He thinks the Bank of Japan, in reaction to yields heading upwards, needs to declare that it will not tolerate overshooting of inflation. They’ll need to rein themselves in:
What can the BOJ do? To begin with, the Bank and the government could make it clear that they are targeting a 2% rate of inflation but at the same time, they will not under any condition tolerate a significant overshooting of that rate.
The Bank of Japan’s May statement on monetary policy is out, and it’s basically a big MAINTAIN on its ‘quantitative and qualitative easing’ (QQE) programme.
If anyone was anticipating the BoJ might take this opportunity to point out it is mindful of recent rises in government bond yields — and apparently some were expecting this sort of reassurance, possibly even tweaking maturities purchased — they would be disappointed. Equities traders just seemed relieved that their rally will continue.
However one member, Takahide Kiuchi, proposed the 2 per cent inflation target shift to a “medium to long term” and the new QQE plan itself be designated as “an intensive measure with a time frame of about two years”. Kiuchi’s proposal at this meeting was voted down by the other eight board members. The central bank has, however, already revealed that some members are concerned about the risks of its QQE plans hurting retail investors in Japanese government debt. Read more
Spot the outliers:
Japan’s economy grew at the fastest pace in a year last quarter, with solid growth in consumer spending and exports suggesting the expansionary policies of Shinzo Abe, prime minister, are delivering quick and tangible results.
Government data on Thursday showed that real gross domestic product increased by 0.9 per cent in the three months to March, or 3.5 per cent in annualised terms. It was the second consecutive quarter of growth, after a rise in October-December that the government revised upward to 1 per cent.
That’s from the FT’s Jonathan Soble.
Of course, quite a lot happened after the end of Q1 as well. Read more
Nikkei 15,000 comes courtesy of a weak yen and increasing earnings expectations which carry some potentially elevated valuations with them. If you need any evidence of how sensitive the Nikkei has become to the yen’s rise, here’s a chart to ease your suffering:
But there are other things at work here. Read more
There it goes:
Japanese government bonds have kept stumbling. Small beer anywhere else in the world, but considering the policy experiment ongoing over there it’s worth keeping an eye on.
We’re not too excited yet but here’s a chart of five and ten year yields and some speculation anyway… Read more
Header credit goes to UBS’s Paul Donovan, the source of the piece of Japanese skepticism that follows. He takes us first to Sherlock Holmes’ “Silver Blaze”:
Gregory: “Is there any other point to which you would wish to draw my attention?”
Holmes: “To the curious incident of the dog in the night-time.”
Gregory: “The dog did nothing in the night-time.”
Holmes: “That was the curious incident.”
A strong opening gambit, as yen tales go. Read more
A surging stock market, increased corporate earnings (check out Toyota) and frothy domestic consumer spending are lending some real optimism to Japan’s Abenomics but the main avenue through which hope flows might be narrower than originally thought.
Consider this chart from Citi’s Steven Englander:
The yen has gained back 2.4 per cent against the US dollar since it threatened but failed to break Y100 ahead of the most recent, and quiet, Bank of Japan meeting — the first since April 4, when QE on steroids was announced.
Now, we are not suggesting this is definitely the start of a yen correction — if we could predict FX moves for sure we’d be on a yacht, Japan isn’t lacking the political will to give it a further shot, this dip is small in context and we’ve seen its like before — but there is clearly a threat.
Simon Derrick, chief global markets strategist at Bank of New York Mellon, sent through a few thoughts which we think capture that threat quite nicely: Read more
Something to keep an eye on (the respective reaction of the 6mth, 2-year, 5-year, 10-year and 30-year JGBs to the BoJ’s QE onslaught):
Seemingly everybody is benefiting from the Bank of Japan’s decision to splash the cash. Peripheral bond yields in Europe have fallen and high-yielding carry targets such as Mexico and Brazil are being touted as destinations for Kuroda’s cash.
Where that cash ends up will in many ways define the success or failure of the Abe/ Kuroda push since what really matters is what happens after the cash has left the BoJ. Read more
Gloves off from Kuroda and everyone is very excited…
For those who need a rundown of what the BoJ actually did, here’s a summary from Nomura: Read more
We’ve used that kind of header before… but Abe is forcing us to crack it out again. From the FT on Tuesday:
Japanese Prime Minister Shinzo Abe has said that the 2 per cent inflation target he imposed on the Bank of Japan may not be reached within two years…
In an exchange with Seiji Maehara, an opposition politician and former economy minister, Mr Abe said the BoJ should not pursue the inflation target “at all costs”.
He struggled as a young bureaucrat on a climb with officials and journalists up a 1,500-meter (4,900-foot) mountain in Nagano Prefecture, to the west of Tokyo, according to Utsumi, now president of Japan Credit Rating Agency Ltd. Kuroda “got exhausted and said he’d never do it again,” he said. “He’s not the sporty type.”
Metaphors aside we can ignore that but the rest of Bloomberg’s profile of the man set to take over at the Bank of Japan is worth a read. After all Kuroda has to convince the Japanese that Abenomics is for real now that much of the easy lifting has already been done. Read more
Well, some of them at least. One of the big determinants of whether ‘Abenomics’ manages to pull Japan from its deflationary spiral is through wage growth. Inflation can’t really kick off or arguably even begin without rising wages. One can argue about how important wage growth is, or where it fits in causality-wise — and we’ll come to that later. But it is — or will be — an important signal as to whether this three-pronged approach of the new-ish Japanese government is working.
And actually, it might be catching on. Read more
1Time to take basic income seriously?
2We cannae give the economy no more, we're giv'n it all we've got Captain
3Hacking and property prices make the BoE big league
4The case for official e-money +1
5QE down under
Show more6Further reading
7The London 6am Cut
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