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
A reminder of the BoJ’s intervention tendencies, from Nomura:
And yes, they really might pull the trigger — what with Y100 against the dollar being broken this morning as Brexit roiled everything — just not quite yet. 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
From Deutsche’s Robin Winkler on the dispersion of pain from Japan’s new, tiered, negative rates regime:
By Nomura first, who are worried that Japan’s economy has taken a dangerous turn — what with GDP dropping at an annualised rate of 1.4 per cent in the fourth quarter and Abenomics being felt for a pulse:
What must the BoJ be thinking as the yen keeps getting stronger post the Japanese central bank’s announcement of negative rates?
By Theo Casey, marketcolor
The loss of simple narratives in forex is something we are learning to deal with together. To continue navigating major and minor crosses we need to make complex narratives more digestible.
Consider dollar-yen. It’s behaving like the bought end of a carry trade. Read more
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
BoJ governor nominee Haruhiko Kuroda has already been fairly clear that he wants to expand the asset-purchasing programme, and buy longer-term bonds. So how significant are his Draghi-sounding “whatever we can do” comments, really? Read more
Details remain hard to come by after the 7.1 earthquake that hit Japan late Thursday night local time, but recent flashes from Kyodo News indicate that its damage has thus far been limited, though a tsunami warning has been issued for the northeast coast where it hit:
As for the earthquake’s impact on the Fukushima Daiichi power plant and other nuclear facilities, the FT has a bit more: Read more
Wall Street closed down 2 per cent and pushed the S&P 500 into negative territory for the year, reports the FT’s global market overview. The Japanese yen hit a record postwar high against the dollar as currency traders bet on repatriation flows, FT Alphaville reports. Risk aversion flared after the European Union’s energy chief said the Japan nuclear reactor situation was “out of control”, triggering renewed fears over the world’s third-biggest economy. Traders quickly realised that the statement by Guenther Oettinger was not predicated on any new information relating to the conditions at the stricken Fukushima plant. That helped send European stocks down for the sixth straight day, and as the selling accelerated in New York, the S&P’s Vix volatility index jumped 19 per cent to 29, its highest since July. Oil lost a chunk of its gains, while key US Treasury yields fell to levels last seen in December. The Swiss franc had risen 1 per cent versus the dollar and was up nearly 2 per cent against the euro as traders again scrambled for perceived havens.
… as overheard by the Bloomberg terminal in the FT NY newsroom.
Back to 77.66 at pixel time after hitting 77.33 (a record postwar high against the dollar). Read more
Toshiba, one of Japan’s biggest industrial groups, claims to have turned the strength of the yen – long the bane of the country’s exporters – to its advantage, reports the FT. The group, which sells everything from refrigerators to nuclear power plants around the globe, said on Monday that changes to its production strategy since 2009 – essentially by buying and building more outside the country – meant it had profited from the yen’s rise in the first half to September. The turnround is remarkable in a country where industrial groups are almost uniformly gloomy about the effects of the soaring currency. On Monday, the yen was trading at about Y80 to the dollar, within a whisker of its all-time high of Y79.70 set in 1995.
You may have heard that China has launched a new mission to the Moon.
But what no one seems to have told the market — or a Federal Reserve pondering further quantitative easing — is that Japan has quietly staged a landing on Planet Zirp in the meantime. Read more
The Japanese government is under intense pressure to tackle the economy after the yen surged to a 15-year high against the US dollar and the stock market fell below 9,000, sparking fears of a double-dip recession, reports the FT. Naoto Kan, the Japanese prime minister, said on Tuesday that steep currency moves were “undesirable” but failed to calm markets amid perceptions that he was more focused on a potential leadership challenge next month than the waning economic recovery. FT Alphaville explains why this might not work.
Fears that the US and other major economies are slowing sharply sent investors piling into the safety of government debt on Tuesday, sending UK, German and US bond yields down to record lows, the FT reports. Global equities and commodities such as oil that move on expectations of growth prospects, also fell sharply. Investors sent the Japanese yen to a 15-year high against the dollar as investors exited risky currency trades.
Meanwhile, FT Alphaville reports late on Tuesday that S&P had downgraded Ireland’s long-term debt to AA-minus.