October 17 is going to be a big day for global USD money markets. It’s the deadline by which prime money market reforms must adjust to floating NAV models, leaving only those funds investing in government securities able to offer par value protection. The likes of Zoltan Pozsar at Credit Suisse are expecting banks to lose a significant whack of unsecured bank funding as a result. Read more
You’ll have already seen Nomura’s Toshihiro Uomoto attempt to explain the state of the world through chart, here.
But we thought we’d also share his suggestion that “30yr Treasury yield should near 0% within two years” as the “scarcity of products with a positive yield should continue facilitating the inflow of funds into the credit market.” Read more
We were going to write about JGB yields jumping after the BoJ disappointed the market and made some (Nomura) think that even if the BOJ hasn’t reached the point where it can no longer deepen its use of current policy tools, “continued use of those tools could hasten the point at which it becomes difficult for the BOJ to act, with the exception of foul play*”
We were then going to compare that jump in yields to a similar jump in May 2013, when 10-year yields spiking “above 1% for the first time in 14 months… fed into an astonishing 7.3% slide in the Nikkei 225″, according to BoNYMellon’s Simon Derrick, and note that all we can really learn from that move is that it led to market turmoil.
But then we saw this work of chart, from Nomura’s credit team, and all of that good work was undone: Read more
Fine, the Japanese stock market maybe isn’t paying attention to the Bank of Japan the way it used to.
But did things have to get this mean?
From CLSA’s Benthos:
Faced with the problem of when to fire its last bullet, the Bank of Japan decided to fire half a bullet at half-cock. Now, speculators will be free to take liberties, fortified by the knowledge that the BoJ has only enough powder left to miss the mark one more time. The yen surged derisively. Governor Haruhiko Kuroda warned he has ample room to extend bankkiller Nirp. Three years after saying he’d achieve 2% inflation in two years, he said he would achieve 2% inflation in two years. It seems the BoJ has entered the Age of Impotence.
Expectations can be tricky things to manage, as in life so in central banking.
The Bank of Japan has everyone ramped up for its decision on the 29th. Although not many actually expect helicopter money (for a variety of reasons, including legal and excluding the fact that it’s not clear it would actually work) there is a belief in the market that some extra bit of stimulus is en route — which will be backed up by some fiscal goodness too.
Here’s a Barclays summary of those expectations: Read more
You’ll have noticed that the yen and Nikkei were displeased yesterday. Like throw your toys out of the pram because you didn’t get what you wanted displeased. Like one of the worst one day JPY moves in the past decade displeased.
What they didn’t get, and what prompted that tantrum, was any auld bit of easing from the Bank of Japan.
And here are eight potential reasons why the BoJ disappointed, from SocGen: Read more
UPDATE: JPY through Y108 as Kuroda says helicopter money is illegal. Of course, definitions matter where that is concerned.
We’re paraphrasing a bit in the headline but Jefferies do think the Japanese authorities are in a corner, painted in by a strengthening yen, tighter monetary conditions and a drop in inflation expectations.
The first question is whether there was a lovely new, but secret, currency accord agreed at the G20 in Shanghai in February.
The answer is: Probably not. Read more
Or, pictorially, what’s up with this?
And we mean apart from the whole “hey, we gave you negative rates why aren’t you giving us weaker yen?” thing as we’ve already spread plenty of pixels on a webpage about that.
It’s more about they strong negative correlation between the yen and equities on show in that chart. Read more
This post will be made up of two pieces. The first will try to explain why JPY continues to defy Japan’s negative rate-led demand for currency weakness. The second will add words to this picture from HSBC which proclaims a break in the (so-called, he adds hastily) currency wars, predicated mostly on said JPY strength:
At last sighting JPY was hovering at about Y108. That’s not good if you are the BoJ’s Kuroda or the overarching Abe, particularly because FX strength can beget more FX strength. The question is why did the yen start this slide: Read more
Kuroda et al might want to look away:
That’s the yen being “whacked to the lowest since October 2014″ (when the BoJ decided to extend its easing programme) in the words of Citi’s FX team. It’s now under Y109 having been at Y125 in June last year. Also from Citi: Read more
Some guesswork from Jefferies on Wednesday:
The upcoming 27-28 April BoJ meeting is likely to push the authorities into finally admitting a plan to consolidate the JGB holdings into perpetual bonds alongside a formal move away from inflation targeting to nominal GDP targeting. There is a growing realization that there are effective limits to how much more JGBs can be acquired…
By Morgan Stanley, do obviously click to enlarge:
From Deutsche’s Robin Winkler on the dispersion of pain from Japan’s new, tiered, negative rates regime:
What must the BoJ be thinking as the yen keeps getting stronger post the Japanese central bank’s announcement of negative rates?
That’s the 10yr going negative for the first time, becoming the first G7 country to do so. Read more
Macro Man might just be on to that something here…
That green line heading down and away from the rest (which you shall see more easily after some enlarging via clicking) is the performance of Japan’s banks since the BoJ went negative last week.
Not sure how many more pixels you’ll tolerate us spilling on the BoJ’s move negative, but this from Simon Derrick at Bank of New York Mellon seems worth your time. With our emphasis, and pars broken up for online readability:
Whether or not the BOJ’s decision was a direct reaction to the ECB’s decision to potentially push even further into negative territory doesn’t really matter. Indeed, it doesn’t even really matter whether or not the BOJ was trying to weaken the JPY by their move (in our opinion plausible deniability remains a key tool for central bankers).
What does matter is that four of the eight members of G8 (France, Germany, Italy and Japan) now have an official negative deposit rate while Canada continues to suffer the impact of collapsing oil prices (Russia, which has had its membership suspended, suffers from the same issue of course).
ICYMI, and on the back of the BoJ going negative, “the universe of DM government bonds trading with a negative yield rose to a record high of $5.5tr, or 24% of the JPM Global Government Bond Index,” according to JPM.
If the BoJ and Mr Kuroda are thinking about storage costs – after taking interest rates to minus 0.1 per cent and saying they “will cut the interest rate further into negative territory if judged necessary” — this might be useful.
From Oxford Econ’s Gabriel Stein & Ben May:
So charted by Citi.
As they say, the coolness of global inflation is not just an energy price story:
Since we can’t put charts in the Cut without borking format for a bunch of readers, here’s what a surprise commitment from the Bank of Japan to raising the monetary base by around Y80tn a year from Y60-70tn, a tripling of annual purchases of ETFs and REITS, and a certain (probably coordinated) GPIF rumour doing the rounds will do to Japanese equities and the yen.
More on the GPIF rumour and the positive and negatives of this latest Kuroda splurge near the bottom.
The Bank of Japan has bought bonds, bills, stocks and property since embarking on its radical monetary easing programme last April.
Now it’s buying time. Read more
Optimism from the mouth of Haruhiko Kuroda, in the FT:
At this stage, we are not thinking about any other policy tools since we are on track and we are likely to achieve the 2 per cent inflation target within the two-years time band.
But there’s a slight problem. From the pens of Credit Suisse (via our inbox):
Neither financial market participants nor the general public appear to have any real confidence in the BOJ’s ability to achieve +2% inflation. The expected inflation rate priced into the JGB linker market points to a steady state closer to +1% after the April 2014 consumption tax hike (Exhibit 1), while households appear to be anticipating even weaker inflation over the coming year.
We thought the following from TD Securities’ Richard Gilhooly on Tuesday was a rather insightful way of looking at the whole BoJ effect (our emphasis):
While it remains a contentious point and as yet unproven, Japan’s devaluation and soaring Nikkei vs slumping DAX or Bovespa has all the hallmarks of a competitive devaluation. While competing factions debate the Monetary expansion/QQE, versus beggar-thy-neighbour interpretation, one positive aspect of the Japanese Yen collapse and fear of exported deflation has been collapsing commodity prices with weak growth in export countries (China, Germany, S Korea) and a stronger USD helping a supply story (crude inventories at 22yr highs) and weak demand send commodities into a bear market.
At least, markets are sure it’s a new dawn for Japanese monetary policy. And yeah, we know: this sort of initial euphoria has fizzled out before — but the new Bank of Japan governors appear to have actually come through with the goods:
Click screenshot for the statement. More to come soon, and in the meantime, see this from the FT’s Ben McLannahan: Read more
Two charts for your morning consideration:
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”.