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
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.
As has been well reported, the IMF has recommended that China’s renminbi should join the basket of currencies used to value its own de facto currency.
There’s been lots of talk, as a consequence, of China now being in a position to properly disrupt the US dollar’s global reserve currency status.
Except, SDR inclusion doesn’t imply anything of the sort.
Furthermore, we’ve very much been here before*. Read more
There’s plenty of discussion about why the oil price collapsed (read Izzy’s take on the changed structure of the market, for one), but consider a broader question: if markets can be so wrong about the price of one of the most widely used and heavily traded commodities, what else are they missing?
We ask because a halving in the price of other markets may not be cheered in the same way as cheap oil. We also wonder what it says about how orderly (or otherwise) big market declines will be, when they eventually roll around. After all, major currency pairs don’t move by a fifth in one morning…
To that end, here’s a reminder of what a 50 per cent decline looks like for a selection of markets, and the last time that level was hit. Read more
The first rule of currency wars is: you always talk about currency wars.
The second rule is: you can always find one to talk about if you look hard enough.
This month’s FX war location of choice is Asia, and here with its proximate cause is BNP Paribas (our emphasis): Read more
It’s probably too early to say concretely that the great yen short of Abenomics has turned into the widowmaker of all widowmakers.
But evidence in favour of such a suggestion is certainly mounting by the day.
We present some examples from the commentary space… Read more
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
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…
From the pen of South Korea over the weekend:
South Korea has warned that G8 leaders need to do more to tackle the “unintended consequences” of Japan’s monetary easing when they gather for a summit later this month amid mounting concerns about the knock-on effects of a weaker yen.
In an interview, Hyun Oh-seok, the South Korean finance minister and deputy prime minister, said that international co-ordinated action was needed to mitigate the impact of so-called Abenomics on currency markets.
First: “unintended consequences”? Not sure about that. It all seems very intentional from where we’re sitting. Read more
One for the mantelpiece, Mr Abe:
(Click through the pic for the Economist article) 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
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
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
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.
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):
This is is a guest post from Philip Pilkington, a writer and research assistant at Kingston University.
In January of this year I noted that the Japanese government was embarking on a stimulus programme and briefly enquired into whether it would likely work or not . At the time media commentary was mixed. Some were saying that it would be a complete failure while others were overflowing with optimism. I was slightly more reserved. Read more
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
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:
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
… the Japanese seek inflation everywhere.
All this talk about Japan, JGB bond yields, QE, the yen… and hardly ever does anyone throw up the following chart.
So, without further ado, here is the most important Japanese chart of all courtesy of Capital Economics… the CPI: Read more
“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
Gotta love a good contrarian yen call.
As we’ve written multiple times, the yen’s recent fall been based on policy which has yet to appear, namely on expectations of Abenomics. Japanese authorities have done an excellent job of short-term monetary fear-mongering, but as Gavyn Davies put it recently there is a severe risk that the international hedge funds which have been driving the decline in the yen might come to the conclusion that the emperor has no clothes. Read more
All this has happened before and will happen again… at least, so hopes the Japanese government.
Current finance minister Taro Aso has been keen to channel the spirit of his 1930s equivalent Korekiyo Takahashi, whose polices are widely credited with pulling Japan out of the Showa Depression. It’s understandable. Read more
This Monday edition of rising Japanese equities/weak yen is brought to you by Haruhiko Kuroda, president of the Asian Development Bank and according to various media reports, the likely nominee for Bank of Japan governor.
Kuroda reportedly said early this month he was quite happy at the ADB and had nearly four years to serve of his third term. But to that we say: Mark Carney! Read more
The weaker yen hasn’t done much for Japan’s exports so far, with preliminary data out today showing another record in Japan’s trade deficit. Exports were 6.4 per cent higher, year-on-year, in January and failed to raise as much as imports (up 7.3 per cent). This brought the trade deficit to Y1.63bn.
Societe Generale say not to worry yet, however. Firstly, those figures are not seasonally-adjusted. Month-on-month seasonally-adjusted numbers show the trade deficit shrank from Y678.9bn in January from a revised Y783.8bn in December. Read more