Bank of Japan

"Mario Draghi and the ECB’s manipulation of asset prices makes Greenspan’s Fed look like a rank amateur. More shocking though than the plunge in the euro, and more shocking even that 25% of sovereign eurozone bonds now trade in negative territory, is what has happened to eurozone equity valuations. For, as we approach the sixth anniversary of the US cyclical bull market, the PE expansion of eurozone equities is simply off the scale!" - Albert Edwards

The BoJ has now gone full intervention-tard - buying Japanese stocks on 76% of the days when the market opened lower.

Yields can always go lower… but at some point investors will have to ask, “how much am I willing to pay the Government to sit on my money? 1%? 2%? 3%?”

While the dollar strength this morning, which has pushed it to a fresh 13 year high and has accelerated the EURUSD plunge to under 1.06 - a drop of over 300 pips since the start of the week - has been a recap of yesterday's trading action, the main difference is that unlike yesterday, the USDJPY has managed to find a strong bid in the overnight session, pushing not only the Nikkei up by 0.4%, but also lifting US equity futures as the entire global marketplace is now merely a sandbox in which the central banks try to crush their currencies as fast as possible.

The entire formerly rich world is addicted to debt, and it is not capable of shaking that addiction. Not until the whole facade that was built to hide this addiction must and will come crashing down along with the corpus itself. Central banks are a huge part of keeping the disease going, instead of helping the patient quit and regain health, which arguably should be their function. In other words, central banks are not doctors, they’re crack dealers and faith healers. Why anyone would ever agree to that role for some of the world’s economically most powerful entities is a question that surely deserves and demands an answer.

A survey of 40 financial institutions shows that BoJ purchases are sapping liquidity and making it difficult for dealers to fill orders. Defiant to the end, the central bank pledges to stay in the market until inflation hits 2%.

We already know that the Bank of Japan will monetize 100% or just over of all Japanese gross sovereign bond issuance (source). As for Germany, on a run-rate basis, and assuming allocation based on the abovementioned capital key, it means that for the next 12 month period, assuming no major funding changes in Germany, the ECB will swallow more than a whopping 140% of gross German issuance! Or, said otherwise, the entities who will buy more than all gross German and Japanese issuance for the next 12 months, are the ECB and the Bank of Japan, respectively.

Something curious has emerged as a result of the divergent "Fed-vs-Everyone-Else" central bank policy: as JPM observed over the weekend while looking at the dollar fx basis, the dollar funding shortage is back with a vengeance, and is accelerating at pace not seen since the Lehman collapse.

The BoJ's Takahide Kiuchi warns of “dire consequences” if the central bank continues to blatantly disregard the “side effects” of QE and also expresses skepticism about the ability of further asset purchases to boost inflation, going so far as to suggest that the BoJ’s prediction of 2% inflation by mid-2016 is nothing more than a fairytale.

All of the biggest problems in the financial world revolve around the bond markets today: Greece, Japan, the Fed's interest rate hike, etc.

"While the wealth effect is a theoretical possibility, it is not supported by economic fact. The stock market is not a good guide to the economy, but...the bond market is a very good economic indicator. When bond yields are very low and declining it’s an indication that the same is happening to inflation and that economic activity is weak. The bond yields are not here for any fluke of reason. They are here because business conditions in the US and abroad are quite poor."

With the Fed and other Central banks now leveraged well above 50-to-1, even those entities that were backstopping an insolvent financial system are themselves insolvent.

All of the biggest problems in the financial world revolve around the bond markets today:

Very few, it seems...