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”.
Excitement about an imminently more pro-active BoJ might take a bit of a tumble on this news out of Tokyo late yesterday.
From the Japan Times:
The Democratic Party of Japan said Tuesday it will support Asian Development Bank President Haruhiko Kuroda as the next Bank of Japan governor but will oppose Gakushuin University professor Kikuo Iwata’s nomination as one of the two BOJ deputy governors because of his extreme stance on monetary policy.
“Whatever we can”, you say? Encouraging words from BoJ governor nominee Kuroda over the weekend (even if comparisons with Mr Draghi are overblown). If Cullen Roche is correct, what happens in Japan over the next year or many could change the future of economic policy. So it’s worth spending a bit more time on what Kuroda’s “can” might actually be.
We’ve argued already that much of the low-hanging fruit of expectations and verbal intervention has already been plucked. Read more
It’s the latest in Japanese swings and roundabouts, pushing the yen higher and JGB yields and stocks lower… What to blame? What to blame?
Oh look, it’s the Abe effect. How exciting. From Reuters:
RTRS – BOJ TO MULL SETTING 2 PCT INFLATION TARGET AT JAN 21-22 MEETING, DOUBLE CURRENT PRICE GOAL – SOURCES
The landslide win for the Shinzo Abe-led Liberal Democratic party in Japan at the weekend pushed the Japanese yen to its weakest level against the dollar since April 2011 (inverted chart, don’t ya know):
Japan’s election on December 16 is going to be a doozy.
It’s probably the first election where the role and independence of the central bank is a key issue, says Gavyn Davies. There’s also rather a lot of yen short positions that are riding, at least in part, on the outcome — IMM data out over the weekend shows net shorts have built to levels not seen since 2007. Read more
The Bank of Japan’s unprecedented joint statement with the Japanese government after the central bank’s October meeting raised eyebrows around the world. The BoJ was already widely seen as having come under increased political pressure in recent months as the country’s economy had slowed; so what did the joint statement mean?
The statement contained a couple of key declarations: “The Bank strongly expects the Government to vigorously promote measures for strengthening Japan’s growth potential”, and “The Government strongly expects the Bank to continue powerful easing as outlined in section 2 until deflation is overcome.” Read more
So, Fitch junked Sharp (to ‘B-’ from ‘BBB-’) and the century-old technology company admitted there is “material doubt” about its ability to stay in business. According to the FT, it expects to end the financial year to March with a net loss of Y450bn ($5.6bn), worse than the Y250bn loss it had predicted in August. Last year it lost Y396bn.
And one line in the rating agency’s critique really stuck out:
Fitch does not foresee any meaningful operational turnaround in the company’s core business over the short- to medium-term due to deterioration in its market position as well as in price competitiveness as a result of a high Japanese yen.
And this one might prove more precipitous than its famous US cousin.
From the FT’s Ben McLannahan:
In an echo of worries in the US over the $600bn of spending cuts and tax increases due to take effect in January – the so-called fiscal cliff – Japanese politicians are at loggerheads over a bill that would allow the government to borrow the Y38.3tn ($479bn) it needs to finance this year’s deficit.
(Chart from RBC Capital Markets.) Read more
Japan’s finance minister Jun Azumi was pretty clear about how the country might respond after the FOMC’s decision last week threatened to push the yen higher against the dollar. Today the BoJ made good on the threat, announcing it would increase its asset-purchasing programme to ¥80 trillion ($1.01tn) from ¥70tn.
The yen did this: Read more
The euro dropped below €1.23 as payrolls missed hard and then the yen… jerked:
… might it be time for something (relatively) new? One question that keeps on popping up is, what is stopping Japan from adopting a currency peg a lá the Swiss National Bank? If repeated easing seems to have no real effect why not get explicit?
Essentially, there is little chance of an explicit floor being put in place due to: Read more
Japan eased… the yen appreciated. The Bank of Japan may be a bit sad. Is now really the time to rub salt into wounds by reminding the BoJ of the futility of its easing actions – at least where the yen is concerned?
Nomura’s Yujiro Goto certainly thinks so (click charts to enlarge): Read more
We love the BoJ’s no-nonsense approach to amendments. If you’re doing something wrong, or not doing enough, just cross it out and change it:
Tetchiness about Japanese bonds seems to be reaching an all-time high lately. But JGBs are not, so far, playing along. The Japanese parliament’s failure to raise the sales tax in the early hours of Wednesday didn’t do much to rattle Japanese bondholders, as the WSJ’s Real Time Japan blog notes. Strong domestic demand, and foreign buyers expecting that the yen might not remain at the lower rates seen over the last month are two reasons ventured. It’s what Andy Xie described this week as the wrong but self-fulfilling belief in the (perpetually) strong yen, in a lengthy piece about a looming crisis for the currency.
The yen has, nonetheless, seen something of a weakening recently, thanks to the BoJ’s Valentine’s Day intervention. And there is some optimism around Japan’s economic growth generally, though a lot of it relates to the post-tsunami rebuilding effort. Both the rebuilding and the weaker yen are cited as one of the reasons the Nikkei is performing relatively well this year and has returned to its pre-tsunami level. Read more
The Japanese yen reacted badly to the Bank of Japan’s decision to hit the QE button last month.
And, before the LTRO (1, in particular) and the Bank of England’s operations, such a reaction would have been viewed as normal: QE = currency negative. Read more
If anyone is an expert on the unintended effects of quantitative easing, it’s the Bank of Japan.
In fact, one might say, what the Fed, ECB, BoE are facing today, the BoJ has already faced. What’s more, what the BoJ is facing today, the Fed, ECB, BoE will face too. Read more
Intervention props and promises were powering global risk assets in early European trading, the FT reports. The Nikkei 225 in Tokyo jumped 2.3 per cent as investors welcomed the Bank of Japan’s unexpected move to bolster its asset purchasing programme by another Y10tn. Financials in particular liked the idea of the central bank supporting the market. And the euro leapt in early Asian action, even after eurozone officials called off an emergency meeting of finance ministers to approve a €130bn bail-out for Greece. Traders latched on to comments from Zhou Xiaochuan, China’s central bank governor, who reiterated a previous pledge from premier Wen Jiabao that Beijing was prepared to help Europe tackle its debt difficulties. This has caused the single currency to rally 0.3 per cent to $1.3162, a move that ignited bullish sentiment across the risk asset spectrum. The FTSE All-World equity index was up 0.6 per cent and commodities were mostly in demand. Copper was adding 1 per cent to $3.85 a pound and Brent crude was higher by 0.6 per cent to $118.01 a barrel. Europe’s FTSE Eurofirst 300 opened higher by 0.4 per cent. Read more
Japan’s central bank has surprised markets by adding another $128bn to its asset purchases and adopting a one per cent inflation target “for the time being”, says Bloomberg. Politicians had urged the Bank of Japan to communicate its measures against deflation more effectively, following the Fed’s adoption of a two per cent inflation target, Reuters reports. But the BoJ’s buying more Japanese government bonds is more significant, as the bank will have to strongly increase the rate of its monthly purchases to meet the new target by the end of 2012, the FT notes. Read more
From the Bank of Japan on Tuesday, February 14:
At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan decided to amend the “Principal Terms and Conditions for the Asset Purchase Program” (see Attachment), with a view to further enhancing monetary easing and thereby ensuring a successful transition to a sustainable growth path with price stability. Read more
The Bank of Japan surprised markets Tuesday by implementing new easing policies and moving closer to an explicit price target, the latest sign of growing worries around the world about the ripple effects of the European debt crisis on the global economy, says the WSJ. The actions follow mounting political pressure on the Japanese central bank to taking more aggressive action to fight deflation and the strong yen, which has been blamed for weakening domestic manufacturers by raising the relative cost of producing goods in Japan. Bloomberg reports Governor Masaaki Shirakawa’s board unexpectedly expanded an asset-purchase program to 65tn yen ($835bn) from 55tn yen, including a credit loan facility, and set a price stability goal of 1 per cent inflation. The central bank maintained the overnight lending rate at between zero and 0.1 per cent. Read more
The Japanese government has confirmed that it intervened unannounced into foreign-exchange markets to weaken the yen last year, for the first time since 2004, the FT reports. Ministry of Finance data released on Tuesday showed Japan carried out Y1.02tn ($13.3bn) worth of unannounced intervention during the first four days of November, after selling a record Y8.07tn on October 31st, when the yen climbed to a post-war high of 75.35 against the dollar. This so-called “stealth intervention” had been widely anticipated, given discrepancies between the rise in yen balances implied by Bank of Japan reserve balance data, and the Y9.09tn of yen-selling MoF had earlier disclosed for the period between October 28th and November 28th. Even so, the more detailed breakdown may increase pressure on Japan from the US. A December report from the US Treasury Department sharply criticised the G7 nation for its recent unilateral interventions to curb yen appreciation. The BoJ has sold the currency four times since late 2010, under orders from MoF. Read more
The Bank of Japan’s latest Tankan survey showed sentiment among large Japanese manufacturers has turned negative, the FT says, highlighting doubts about the prospects for the national economy’s recovery from its 2008-2009 slump and the March earthquake and tsunami. The much-watched quarterly survey found that big manufacturers expected conditions to worsen further in the first quarter of 2012. The December Tankan’s headline index, which compares the number of large manufacturers reporting positive conditions with those reporting negative views, fell to -4 from the +2 reported for September. The forecast for the March 2012 survey was -5. The result is likely to fuel calls for the government and central bank to do more to curb the yen’s rise through intervention and more aggressive monetary policy.
We already know something about the buyers of Monday’s difficult-to-get-away €3bn 10-year EFSF bond issue. And here, via JPMorgan, is a little more detail.
What’s interesting is the muted demand from traditional fund management community – insurance, asset managers etc – and the big take up by non co-lead banks, presumably French ones if the geographic break down is anything to go by. Read more