A predictable response to the utter confusion around yesterday’s G7 statement:
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First we had this rather bland statement from the G7 — “domestic objectives” etc — and now this:
12-Feb-2013 13:56 G7 OFFICIAL SAYS G7 IS CONCERNED ABOUT UNILATERAL GUIDANCE ON THE YEN, JAPAN WILL BE IN SPOTLIGHT AT G20 MEETING IN MOSCOW
12-Feb-2013 13:56 – G7 OFFICIAL SAYS G7 STATEMENT WAS MISINTERPRETED, STATEMENT SIGNALED CONCERN ABOUT EXCESS MOVES IN JAPANESE YEN
Japan’s Masaaki Shirakawa gave notice on Tuesday that he would be leaving his post as governor of the Japanese central bank on March 19, three weeks earlier than slated.
Can we blame Shirakawa? His departure now coincides with that of two deputy BoJ governors who would be replaced by Abe-nominations (we resisted the urge to go for ‘Abominations’; it wasn’t easy.).
If Shirakawa had stuck around he presumably would have found himself the head of an increasingly mutinous court. Read more
We have to admit we found a point made by Nomura’s Richard Koo last month a little confusing. He argued quite persuasively that deflation is simply not a serious problem for the Japanese today.
JP Morgan’s chief Japan economist Masaaki Kanno weighed in on the rather odd dichotomy in the FT on Monday, arguing that:
The key to understanding the success of Abenomics is the asymmetric response between the currency and the bond markets, which can be attributable to divergent inflation expectations. In the currency market, inflationary expectations rose among investors, mostly non-Japanese, while on the other hand the JGB market remains dominated by Japanese investors, whose inflation expectations appear more or less unchanged.
The ‘currency wars’ are usually a bit more abstract than this.
Just as the Japanese look to be finally weakening their stubborn yen and spur some inflation in a stagnant economy, there is a suggestion, just a suggestion mind, that a deliberate plan to scupper, or at least hinder, that plan might be afoot. Read more
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
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 YEN IS DOOMED, don’t ya know? And, to be fair, the longer term arguments are hard to fight against but the risk of a near to medium-term yen bounce is significant. Read more
Well, we’re cheating a bit here as the anniversary was two days ago, but it still allows for a discussion of the “government versus the central bank” thing going on in Japan and gaining traction everywhere else. It’s been just over a year since Japan’s Ministry of Finance last threw a whole heap of yen at the US dollar — the selling started on October 31 and ended on November 4. 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.
So the Bank of Japan basically did what what was expected of it as did the yen, which gained 0.5 per cent against the dollar as traders saw massive selling of dollar-yen going through as the Bank’s decision hit the wires.
So far, so predictable. We thought UBS’ Paul Donovan summed up the BoJ’s move fairly well:
Japan saw the Bank of Japan defy government pressure to increase the asset purchase program by JPY10tn. They increased it by JPY11tn. No doubt this will be as effective as all the previous actions which have already raised the level of the BoJ balance sheet to 32% of GDP.
But the increasing pressure that is being piled on the Bank by the government is worth drawing attention to. As well as the Bank’s attempts to shift it right back to the government. Read more
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.
… just as it becomes the new China, which is no longer the old China. Ok? Probably not, but we may as well go through the argument anyway. The idea is that Japan, sick of yen strength which it struggles to combat in a risk-driven world, sticks a Swiss-style floor under its currency.
It’s not the newest idea and there are suggestions that a de facto floor is already in place anyway but the argument, from Société Générale, is worth running through as there is certainly more chance of an explicit floor being announced now than there was when we last visited the idea. 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
QE3 has set the dogs of FX verbal intervention loose (well, looser anyway) and it seems probable some actual shots may be fired in the coming while.
Bank of New York Mellon’s alliterative Neil Mellor pointed to Brazil, where the central bank was the first to pass comment on the Fed’s move (with our emphasis): 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
The Bank of Japan’s monetary policy decision on Friday has been powerfully talked up by analysts and officials alike, with the bank under real political pressure to satisfy market expectations and announce new easing measures that target inflation and growth.
The BoJ surprised markets on February 14 when it announced an increase in its asset-purchasing programme to Y65tn from Y55tn, and an explicit inflation target of 1 per cent. But at its last policy meeting on April 10 it decided not to implement additional monetary easing. Read more
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
Come another season… come another seasonal distortion. The following argument is pegged on the end of the Japanese financial year on March 31 and its potential impact on the yen.
Now, it seems there are always a few old market myths thrown around at this time of year. Read more
Bank of Japan easing policy has sent the yen to lowest level against the dollar since July, with the spread between two-year US Treasuries and Japanese debt widening the most since August, says Bloomberg. The yen has lost 3.7 per cent since the BoJ unveiled a one per cent inflation target on February 14. UBS reckons the BoJ’s shift could see the yen at ¥85 by the end of year, although the yen could return to its 2011 rally if Japan resumes posting a trade surplus in 2012, according to the WSJ.
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.