BOJ To Hold Emergency Policy Meeting At 5am GMT, Additional Easing Announcement Expected; Nikkei-S&P Convergence In Play

It was a brief 24 hours ago that we suggested putting on a Nikkei-S&P convergence arb with the provision that "this is the cheapest and easiest way to hedge what is becoming
increasingly inevitable: that the BoJ will have no choice but to follow
our own Fed down the rabbit hole of money printing." A few minutes ago the Dow Jones released the following: "The Bank of Japan will consider taking
additional easing steps to cope with a rising yen and falling
share prices, the Sankei Shimbun reported in its morning edition." The BOJ will hold an emergency meeting policy meeting at 5 am GMT at which point the specifics of the easing measures will be announced.

More from Dow Jones:

One likely way that the central bank may do this is to expand the funds it offers to financial institutions at a 0.1% fixed rate to Y30 trillion from Y20 trillion, or lengthen the program to six months from three months, the report said.

The report also noted the BOJ may announce the new measures at an emergency policy board meeting ahead of an upcoming meeting between Prime Minister Naoto Kan and BOJ Gov. Masaaki Shirakawa.

As this is certain to ignite the nitrous under the Nikkei (and punish the JPY, as the BoJ enters the final lap of the monetary destruction race to the deflationary bottom), those who put on the convergence trade as suggested are likely to see imminent profits.

Comments

[Conrad Murray]

All this printing and easing, and flying money up for grabs; it's like that phone booth looking thing they have at parties that is filled with dollars.  They turn on the blowers and you get 30 seconds or so to grab as much as you can.

[dlmaniac]

Since they've exhausted their savings, they might as well just print it all as the political backlash will be less now, just like what it is going on in US now.

[Cursive]

@Conrad Murray

Classic.  A photo of the money booth should accompany all future ZH posts on QE.

[Cognitive Dissonance]

I agree. Let's start now.

[The Rock]

It also works as a gas chamber... reminds me of the movie Batman where the Penguin (or Joker) is dropping money in the streets to lure the people into getting gassed.

[Number 156]

Rabbit hole, or black hole complete with an event horizon?

[william the bastard]

Black vortex of helllllaaah

[NoVolumeMeltup]

Bukkake Theater?

Uh, I mean Kabuki.

[Thomas]

Bukkake theater! Very funny. Twenty goddamned years of toad chokers putting it right in their faces and all those Yakuza want is more stimulus. More pink eye comin' up.

[Mitchman]

No wonder the Nikkei was up about 1% at the opening.

[MsCreant]

This is NOT the final lap.

Some babies grow in a peculiar way 
It changed, it grew, and everybody knew..

[Mitchman]

Great quote.  Great Steely Dan song.

[-1Delta]

Just think if the YEN is going down (crowed trade anyways), and the AUDJPY must hold.. the AUDUSD is going to tank (also a crowed trade).

By crowed i mean net spec as % OI according to the CFTC data... 

This would be another way to play the convergence (IMHO); however, we will see if they break their respective trends

[Monoki]

BOJ eases...what does this mean for the SPX near term?  Any thoughts?

Ooh-rah!

[Cult_of_Reason]

It depends on what exactly BOJ will do. If it is only what the media is reporting, it is likely to disappoint the market. If the market is disappointed and USD/JPY breaks below 85 level, we should see a major market selloff.

On the other hand, if BOJ makes a big splash announcment, USD/JPY breaks out and sticks above 86.30 level, we could get a short term rally (assuming initial claims will not print above 500K tomorrow morning -- the market is not prepared for the claims above 500K shocker).

Basically, monitor USD/JPY 85 and 86.30 levels, and initial claims in a.m.

[Monoki]

Informative.  Will be on the look out.  And thank you for pairing currencies to domestic equities.

Also, ES mini futures and SPX have been testing and restesting the 50-day moving average at 1087.60.  Broke above it nicely and then ran into trouble at the round number 1100.  Been ping-ponging back and forth in between.  Another SPX break below 1087 without retest possibly signals further downside.  Bust below and break above it again, and THEN break above round number 1100 and the SPX moves quickly to 1130-1150.  A break below 1084 on SPX without retest is immediate round number 1050, in my view.

We all know that the global macroeconomic picture isn't good (so does the market), and Q2 earnings only look good because expectations notched down after the EU concerns.  Low UST ylds certainly signal deflation and savings, but equities can fair well with anouther round of QE, being that this market is only liquidity driven.

Knowing this background, if correct, provides decent trading opportunities. 

Rah!

[william the bastard]

QE infinity rat hole Bitchez !!

[Cult_of_Reason]

According to Reuters, the Japanese government bond market showed little reaction to the report, as further easing appears to be already priced in.

[trav7777]

Emergency, bitchez...sheesh.

This type of competitive QE is going to set up major, major stresses in the international markets.

There's no real way to "devalue" currencies these days, as the bankers are finding out, bc none are pegged to anything real. 

All we can do is cheapen relative to yen, which causes them problems. 

[Mitchman]

+1.  A ridiculous merry-go-round.

[egdeh orez]

+1, Bitchez!!

[traderjoe]

At what point (20 years maybe?) does the alternating QE/stimulus, etc. just seem absolutely farcical?

[Nihilarian]

Have you ever drank alcohol? You know what happens once you break the proverbial seal? Central bankers have broken that seal long ago on their ever increasing consumption of kool-aid.

[zaknick]

Tyler Durden is THE man.

[crzyhun]

As of 21:15 Futures @ Europe are down, Asia is mixed with the Nikkei up and china down, domestic futures are up too. Dollar up, euro down, and yen up. Staaaay tuned!

[poor fella]

Instead of one snake eating its tail - we have a circle jerk of snakes all eating the tails in front of them. Who the HELL is in charge and who has ANY freakin' ideas that are actually going to help.

Worst case scenario - if things really hit the crapper; in this new day and age of 'globalization' all that's going to happen is chaos and violence on a global scale. I doubt there's any preperation. Similar to past conflicts, it's a crapshoot whether you live or not.

Maybe things will work out - The trip sure is beautiful, and on a long enough timeline...

[ZackLo]

The snakes might be anacondas but they'll all reach the heads adventually, when the first snake in the chain gets fully eaten then things will get interesting;)

[Deflation]

China can't win for losing ;)

http://www.chinavestor.com/knowledge-base/economy/72186-china-likes-euro...

They didn't know Bernanke pulled the strings in Japan too. Classic! China says fuck the dollar we're going to buy more Yen and Euros... Couple of days later Japan starts printing.

China just buy gold and take delivery! Lets get this party started already!

[septicshock]

No way! The Chinese will just keep stockpiling everything useful like coal, oil, etc... They know this sucker is crashing. Gold purchases are already going on, but they will do this under the radar so they can keep buying on the cheap. Massive purchases would make their current treasury holdings worthless. I bet they probably have ten times the gold they are declaring.

[three chord sloth]

Well, Japan did invent the Asian Model...

Do not mess with the master!

[IrrationalMan]

Reuters Disagrees:

By Kaori Kaneko

TOKYO, Aug 19 (Reuters) - The dollar pared gains against the yen on Thursday after sources familiar with the matter said the Bank of Japan is highly unlikely to hold an emergency meeting later in the day.

Rumours had circulated in the market that the BOJ would hold an emergency policy meeting at 2 p.m. local time (0500 GMT) after a media report that the central bank had started considering additional monetary easing steps.

The most likely option under consideration is expanding the BOJ's fund-supply tool put in place in December, Japan's Sankei newspaper said, without citing sources.

The central bank may either expand the fund supply volume to 30 trillion yen ($352 billion) from 20 trillion yen, or extend the duration of cheap, fixed-rate loans to banks to six months from three months, the paper said. [ID:nTOE67H06U]

The report weighed on the yen somewhat but the overall reaction was limited as investors remained cautious until they see exactly what the authorities might do.

"If the BOJ announces only what the report is saying, it is likely to disappoint the market. And there is a possibility that the yen may even appreciate further," said Yuji Saito, director at Credit Agricole's foreign exchange department.

The dollar rose 0.2 percent compared with late U.S. trade on Wednesday to 85.65 yen <JPY=>, trimming gains from day's high at 85.81 yen but holding above a 15-year low of 84.72 yen hit on trading platform EBS last week.

"Such steps by the BOJ may help to spur dollar short-covering against the yen. But it would be difficult to change the yen's firm trend," said Tomohiro Nishida, treasury department manager at Chuo Mitsui Trust and Banking.

WATCHING THE CENTRAL BANK

Investors are watching whether the Japanese central bank or the government will take new steps to rein in the yen's export-sapping rise ahead of a meeting between Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa expected next Monday.

Japanese Finance Minister Yoshihiko Noda repeated his mantra on Thursday he is continuing to watch foreign exchange moves carefully. [ID:nTKG006828]

Japanese authorities seem unlikely to conduct yen-selling intervention, however, unless the yen's rise accelerates sharply, market players say.

The euro slipped after a Spiegel report that austerity steps to fix Greece's debt trouble are damaging its economy but falls in the currency were seen limited as the report provided few fresh incentives. [ID:nTOE67I00Q]

The euro fell 0.3 percent to $1.2809 <EUR=> and support for the currency is seen at the 100-day moving average at $1.2776, while the upside is heavy around $1.2900, a trader at a Japanese bank said.

The euro was little changed against the Japanese currency at 109.82 yen <EURJPY=R>, after touching a seven-week low of 109.07 yen on EBS earlier this week.

Japanese investors bought a net 2.18 trillion yen ($25.6 billion) of foreign debt in the August 8-14 week, the largest volume of purchases since the finance ministry started to gather its weekly capital flows data in January 2005. [JP/CAP]

Japanese investors have been net buyers of foreign bonds for 14 straight weeks, picking up 14.52 trillion yen ($170.2 billion).

Japanese have bought a net 16.37 trillion of overseas debt so far this year, already exceeding last year's total net buying of 12.13 trillion yen.

A source familiar with the data said Japanese banks have been aggressively buying overseas debt, boosting the net buying figure. But banks' hefty purchases of foreign bonds are not seen helping to rein in recent gains in the yen because banks hedge against foreign exchange volatility when they buy bonds abroad or raise funds overseas to finance their purchases, the source said.

Banks' buying of U.S. government debt is likely to have contributed to a fall in Treasury yields and actually to have been more of a negative factor for dollar/yen, some analysts say.

The pair's moves have recently had a strong correlation with U.S.-Japanese government bond yield spreads, which have narrowed as U.S. treasury yields fell sharply over the past few months. (Additional reporting by Masayuki Kitano and Rika Otsuka; Editing by Edmund Klamann) (([e-mail]; Reuters Messaging: [e-mail]; [phone])) ((If you have a query or comment on this story, send an email to [e-mail])) Keywords: MARKETS FOREX

[JackES]

wonder what impact will be on EURUSD.

[redpill]

I would guess that if the dollar bolsters a bit against the yen then the dollar will go up against the Euro a bit as well.  These are the only three currencies that can handle the mega-flows of forex capital, so it's a bit of a round robin.  If JPY signals more easing, chances are the big boys will pile back into dollars before they'll go into Euros with the likelihood of the shit hitting hte fan in the Eurozone higher in the near term.

[Jeffersonian]

Didn't the BOJ say just two days ago that the strong Yen wasn't yet a concern for the economy? And now they announce an emergency meeting to deal with it? Am I the only who thinks this is nuts? How do they plan on inspiring confidence with a switch like that?

[Myzery]

Apparently they weren't invited to the party and didn't know about the "new" POMOS?

[Lapri]

Nikkei Newspaper, citing Reuters, says the bond market is pricing in the further lowering of the overnight fund rate (already 0.1%). 2-year JGB yield approaching 0.1%, the level seen for the first time since September 2005.

Maybe Japan will become the first country to have the negative funds rate..

[Coldfire]

Proof that central planning works.

[zhaowei]

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[zhaowei]

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[Catullus]

Wow.  Fun stuff at 3:45 am. 

[plocequ1]

BOJ has meeting, Futes turn green, All is well. Rally on Bitchez

[Goldenballs]

More Bog roll to fill the markets.Hope all this is coming from replaceable forrests or there will be a tree shortage.

[Herry12]

There are certainly a lot of details like that to take into consideration.I read and understand the entire article and I really enjoyed it to be honest.
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