The USDJPY Punching Bag
“what will it accomplish to say that you will be more stimulative. If the current level of stimulus is not working, saying you will do more won’t get people to buy those inflation hedges” – Citibank
It cannot be summed up any better than this, or this other one by Matt King of Citi as well.
“Most doctors – and even patients – know that when a course of drugs seems not to be working, you don’t simply keep on doubling the dosage. This applies particularly when the patient, if no longer as sprightly as they used to be, is nevertheless doing more or less fine.”
The first person or thought that comes to mind instinctively – Haruhiko Kuroda, the Governor of the BoJ.
Source : Wikipedia
This guy just would not give up on his blind fixation with an impossible goal of achieving 2% inflation and looking at the chart below, it does look like Japan is back to square 1 after stimulus was launched in 2013.
And Japanese should be thankful for the mild deflation in their hands for the amount of stimulus expended that would make BoJ the largest shareholder of 55 companies by the end of next year, in addition to all the bonds they have bought.
Examining the BoJ Balance Sheet (yellow line) along with the USDJPY (white line) and the ill-fated CPI (green line) that the BoJ insists on targeting via buying stocks and bonds, it would appear that the tripling up of the balance sheet has, errr, gone to waste.
Conspiracy Theory
So sure of the markets that the BoJ is doomed to fail that 2016 has been nothing but all about the USDJPY being the “global punching bag”, coming to represent the “ultimate risk off hedge” for most products as a conspiracy theory.
It strikes me as perfectly sensible when reading a trade idea in February to “Short the S&P 500 and Short the USDJPY” as a hedge because all BoJ efforts would have limited impact on both the real economy and asset prices.
Whether you short S&P or gold or oil or bonds, selling the USDJPY is the best hedge and has been paying off well as a trade with the JPY strengthening over 16% against the USD this year.
And it has probably been hard wired into all the seasoned algorithms out there by now because we note that the Nikkei and USDJPY relationship has broken down of late where the Nikkei’ strength defied the USDJPY weakness against our usual assumptions.
This is happening as JPY longs remain at their historic highs, judging by the CFTC report of futures positions.
Helicopter Money
It is becoming widely regarded that the BoJ has run out of options, a fact all central bankers and the IMF would dispute, and that “helicopter money” is the only viable option left in their vain pursuit of re-inflating their economy and chasing funds offshore which has caused the cost of USD onshore in Japan to blow up across the entire curve from the 1 month to 30 years.
“Helicopter money, a kind of last resort in unconventional monetary policy, comes in several forms. The most simple is printing money and giving it to the public in the hope they’ll spend it: equivalent to dumping cash from choppers in the air. Others include putting money directly into the hands of companies or financing state spending by having the BOJ buy bonds straight from the government.
Speculation about the policy peaked in July after a visit to Tokyo by former Federal Reserve Chairman Ben S. Bernanke during which he met separately with Kuroda and Prime Minister Shinzo Abe. He floated the idea of selling perpetual bonds directly to the central bank during discussions in Washington with one of Abe’s key advisers in April.” http://www.bloomberg.com/news/articles/2016-08-30/kuroda-helicopter-money-denials-fail-to-stop-theories-spinning
Jackson Hole, the FOMC & the BoJ
If anything has emerged from the recent Jackson Hole symposium besides the Fed hike expectations, it would be that the new fad that will emerge in the months to come would be fiscal policies.
The view is that the BoJ will start buying bonds of local governments and public corporations to fund the worthy causes of infrastructure and social projects. http://www.bloomberg.com/news/articles/2016-08-28/forget-helicopter-money-boj-may-prefer-to-fund-railways-sewers
This would channel the funds into the right avenues rather than buying bonds from banks and insurers who end up running outside Japan to buy the next bond they see, money not to be seen on the shores of Japan that would encourage inflation of some sort.
The US Non Farm Payroll shall ascertain the direction of the FOMC on the 22nd of September which is just a day after the Bank of Japan meeting on 21 Sept.
For the layman, it is perhaps time to for a good market flush-out until then given all the unknowns and the probable change of tact come the central banks and the BoJ would have some breathing room if a Fed hike is in the cards because a US hike = everyone else cut !
Yet it is not bad, considering that if we see USDJPY back to 106 in the days ahead, we have the punching bag the next time we have another crisis.
copyright EZFX and reproduced with permission.
The USDJPY Punching Bag
“what will it accomplish to say that you will be more stimulative. If the current level of stimulus is not working, saying you will do more won’t get people to buy those inflation hedges” – Citibank
It cannot be summed up any better than this, or this other one by Matt King of Citi as well.
“Most doctors – and even patients – know that when a course of drugs seems not to be working, you don’t simply keep on doubling the dosage. This applies particularly when the patient, if no longer as sprightly as they used to be, is nevertheless doing more or less fine.”
The first person or thought that comes to mind instinctively – Haruhiko Kuroda, the Governor of the BoJ.
Source : Wikipedia
This guy just would not give up on his blind fixation with an impossible goal of achieving 2% inflation and looking at the chart below, it does look like Japan is back to square 1 after stimulus was launched in 2013.
And Japanese should be thankful for the mild deflation in their hands for the amount of stimulus expended that would make BoJ the largest shareholder of 55 companies by the end of next year, in addition to all the bonds they have bought.
Examining the BoJ Balance Sheet (yellow line) along with the USDJPY (white line) and the ill-fated CPI (green line) that the BoJ insists on targeting via buying stocks and bonds, it would appear that the tripling up of the balance sheet has, errr, gone to waste.
Conspiracy Theory
So sure of the markets that the BoJ is doomed to fail that 2016 has been nothing but all about the USDJPY being the “global punching bag”, coming to represent the “ultimate risk off hedge” for most products as a conspiracy theory.
It strikes me as perfectly sensible when reading a trade idea in February to “Short the S&P 500 and Short the USDJPY” as a hedge because all BoJ efforts would have limited impact on both the real economy and asset prices.
Whether you short S&P or gold or oil or bonds, selling the USDJPY is the best hedge and has been paying off well as a trade with the JPY strengthening over 16% against the USD this year.
And it has probably been hard wired into all the seasoned algorithms out there by now because we note that the Nikkei and USDJPY relationship has broken down of late where the Nikkei’ strength defied the USDJPY weakness against our usual assumptions.
This is happening as JPY longs remain at their historic highs, judging by the CFTC report of futures positions.
Helicopter Money
It is becoming widely regarded that the BoJ has run out of options, a fact all central bankers and the IMF would dispute, and that “helicopter money” is the only viable option left in their vain pursuit of re-inflating their economy and chasing funds offshore which has caused the cost of USD onshore in Japan to blow up across the entire curve from the 1 month to 30 years.
“Helicopter money, a kind of last resort in unconventional monetary policy, comes in several forms. The most simple is printing money and giving it to the public in the hope they’ll spend it: equivalent to dumping cash from choppers in the air. Others include putting money directly into the hands of companies or financing state spending by having the BOJ buy bonds straight from the government.
Speculation about the policy peaked in July after a visit to Tokyo by former Federal Reserve Chairman Ben S. Bernanke during which he met separately with Kuroda and Prime Minister Shinzo Abe. He floated the idea of selling perpetual bonds directly to the central bank during discussions in Washington with one of Abe’s key advisers in April.” http://www.bloomberg.com/news/articles/2016-08-30/kuroda-helicopter-money-denials-fail-to-stop-theories-spinning
Jackson Hole, the FOMC & the BoJ
If anything has emerged from the recent Jackson Hole symposium besides the Fed hike expectations, it would be that the new fad that will emerge in the months to come would be fiscal policies.
The view is that the BoJ will start buying bonds of local governments and public corporations to fund the worthy causes of infrastructure and social projects. http://www.bloomberg.com/news/articles/2016-08-28/forget-helicopter-money-boj-may-prefer-to-fund-railways-sewers
This would channel the funds into the right avenues rather than buying bonds from banks and insurers who end up running outside Japan to buy the next bond they see, money not to be seen on the shores of Japan that would encourage inflation of some sort.
The US Non Farm Payroll shall ascertain the direction of the FOMC on the 22nd of September which is just a day after the Bank of Japan meeting on 21 Sept.
For the layman, it is perhaps time to for a good market flush-out until then given all the unknowns and the probable change of tact come the central banks and the BoJ would have some breathing room if a Fed hike is in the cards because a US hike = everyone else cut !
Yet it is not bad, considering that if we see USDJPY back to 106 in the days ahead, we have the punching bag the next time we have another crisis.
copyright EZFX and reproduced with permission.
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