BoJ motive suggestions (with bonus rejections)

Explaining the BoJ’s shift to Quantitative and Qualitative Easing (QQE) with yield curve control is hard.
Or, at least, doing so definitively is hard because everyone is very keen to point out reasons against whatever suggestion you’ve got.
Continue re…

Explaining the BoJ's shift to Quantitative and Qualitative Easing (QQE) with yield curve control is hard.

Or, at least, doing so definitively is hard because everyone is very keen to point out reasons against whatever suggestion you've got.

Continue reading: BoJ motive suggestions (with bonus rejections)

In Japan, my kingdom for a dollar hedge

Could the collapse of covered interest rate parity be the harbinger of even stranger things to come ? At the heart of the issue is how on earth the interest rate differential between two currencies in the cash money markets is no longer equal to the di…

Could the collapse of covered interest rate parity be the harbinger of even stranger things to come ? At the heart of the issue is how on earth the interest rate differential between two currencies in the cash money markets is no longer equal to the differential between the forward and spot exchange rates.

Continue reading: In Japan, my kingdom for a dollar hedge

The ECB, innovation and yield targets

Where the BoJ leads the ECB may/may not follow.

You will all remember that last week the BoJ unveiled QQE with yield control — a 10yr yield target that may signal the end of QE as we know it.

Continue reading: The ECB, innovation and yield targets

Where the BoJ leads the ECB may/may not follow.

You will all remember that last week the BoJ unveiled QQE with yield control — a 10yr yield target that may signal the end of QE as we know it.

Continue reading: The ECB, innovation and yield targets

Good idea, bad idea: Yield targeting edition

Good idea: More reactive than a quantitative target; can signal long-term commitment to policy; potentially reduces purchases required if market believes your yield target is credible; potentially good for effectiveness of fiscal policy; potentially good for banks as it can imply a steeper yield curve; and allows for an “automatic exit” from the policy if everything goes to plan.

Screen Shot 2016-09-26 at 15.45.52

Continue reading: Good idea, bad idea: Yield targeting edition

Good idea: More reactive than a quantitative target; can signal long-term commitment to policy; potentially reduces purchases required if market believes your yield target is credible; potentially good for effectiveness of fiscal policy; potentially good for banks as it can imply a steeper yield curve; and allows for an “automatic exit” from the policy if everything goes to plan.

Screen Shot 2016-09-26 at 15.45.52

Continue reading: Good idea, bad idea: Yield targeting edition

Has the BoJ signalled the end of QE as we know it?

That is, by diluting if not outright abandoning the quantitative/ balance sheet expansion aspect of its policy with a move to QQE with yield control has the BoJ admitted that the current stage of central bank action is nearing its limits?
Citi’s Buiter…

That is, by diluting if not outright abandoning the quantitative/ balance sheet expansion aspect of its policy with a move to QQE with yield control has the BoJ admitted that the current stage of central bank action is nearing its limits?

Citi's Buiter et al seem to think so:

Continue reading: Has the BoJ signalled the end of QE as we know it?

More on Libor and that Japan connection

October 17 is going to be a big day for global USD money markets. It’s the deadline by which prime money market reforms must adjust to floating NAV models, leaving only those funds investing in government securities able to offer par value protection. …

October 17 is going to be a big day for global USD money markets. It's the deadline by which prime money market reforms must adjust to floating NAV models, leaving only those funds investing in government securities able to offer par value protection. The likes of Zoltan Pozsar at Credit Suisse are expecting banks to lose a significant whack of unsecured bank funding as a result.

Continue reading: More on Libor and that Japan connection

This is nuts, ‘US30Yr Bond Yield to Evaporate’ edition

You’ll have already seen Nomura’s Toshihiro Uomoto attempt to explain the state of the world through chart, here.

But we thought we’d also share his suggestion that “30yr Treasury yield should near 0% within two years” as the “scarcity of products with a positive yield should continue facilitating the inflow of funds into the credit market.”

Continue reading: This is nuts, ‘US30Yr Bond Yield to Evaporate’ edition

You'll have already seen Nomura's Toshihiro Uomoto attempt to explain the state of the world through chart, here.

But we thought we'd also share his suggestion that "30yr Treasury yield should near 0% within two years" as the "scarcity of products with a positive yield should continue facilitating the inflow of funds into the credit market."

Continue reading: This is nuts, ‘US30Yr Bond Yield to Evaporate’ edition

When modern art meets global financial markets and monetary malaise

We were going to write about JGB yields jumping after the BoJ disappointed the market and made some (Nomura) think that even if the BOJ hasn’t reached the point where it can no longer deepen its use of current policy tools, “continued use of those tool…

We were going to write about JGB yields jumping after the BoJ disappointed the market and made some (Nomura) think that even if the BOJ hasn't reached the point where it can no longer deepen its use of current policy tools, "continued use of those tools could hasten the point at which it becomes difficult for the BOJ to act, with the exception of foul play*"

We were then going to compare that jump in yields to a similar jump in May 2013, when 10-year yields spiking "above 1% for the first time in 14 months... fed into an astonishing 7.3% slide in the Nikkei 225", according to BoNYMellon's Simon Derrick, and note that all we can really learn from that move is that it led to market turmoil.

But then we saw this work of chart, from Nomura's credit team, and all of that good work was undone:

Continue reading: When modern art meets global financial markets and monetary malaise

Discussing the BoJ’s alleged impotence…

Fine, the Japanese stock market maybe isn’t paying attention to the Bank of Japan the way it used to.

But did things have to get this mean?

From CLSA’s Benthos:

Faced with the problem of when to fire its last bullet, the Bank of Japan decided to fire half a bullet at half-cock. Now, speculators will be free to take liberties, fortified by the knowledge that the BoJ has only enough powder left to miss the mark one more time. The yen surged derisively. Governor Haruhiko Kuroda warned he has ample room to extend bankkiller Nirp. Three years after saying he’d achieve 2% inflation in two years, he said he would achieve 2% inflation in two years. It seems the BoJ has entered the Age of Impotence.

Continue reading: Discussing the BoJ’s alleged impotence…

Fine, the Japanese stock market maybe isn’t paying attention to the Bank of Japan the way it used to.

But did things have to get this mean?

From CLSA’s Benthos:

Faced with the problem of when to fire its last bullet, the Bank of Japan decided to fire half a bullet at half-cock. Now, speculators will be free to take liberties, fortified by the knowledge that the BoJ has only enough powder left to miss the mark one more time. The yen surged derisively. Governor Haruhiko Kuroda warned he has ample room to extend bankkiller Nirp. Three years after saying he’d achieve 2% inflation in two years, he said he would achieve 2% inflation in two years. It seems the BoJ has entered the Age of Impotence.

Continue reading: Discussing the BoJ’s alleged impotence…