If the BOJ’s mad money printers were treated as monetary pariahs by the rest of the world, it would at least imply that a modicum of sanity remains on the planet. But just the opposite is the case. Establishment institutions like the IMF, the US treasury and the other major central banks urge them on, while the Keynesian arson squad led by Professor Krugman actually faults Japan for being too tepid with its “stimulus”. Now comes several new data points that absolutely confirm Japan is a financial mad house...
The US dollar closed higher against all the major currencies during the holiday shortened week. The lack of liquidity may have exaggerated the weakness of Swedish krona and Norwegian krone, the poorest performing major currencies. Both lost about 1.5% against the greenback.
The least weak currencies were in the dollar-bloc. The Canadian and New Zealand dollars were practically flat, and the Australian dollar slipped 0.2%. The euro and sterling slipped about 0.5%, while the yen shed 0.7% of its recent gains.
Japanese 10Y Yield Drops To Record Low; 2s Sell Subzero After BOJ Indirectly Buys Record Foreign StocksSubmitted by Tyler Durden on 12/25/2014 15:43 -0500
While the rest of the world was preparing to celebrate Christmas, China was busy easing its economy into growth, and its stock market into low earth orbit, by lowering non-bank deposit reserve rates to zero as reported previously, while Japan was enjoying the consequences of the BOJ monetizing 100% of all gross JGB issuance, when overnight the Japanese Ministry of Finance not only sold $22 billion in 2 Year paper at a negative yield of -0.003%: the first time ever a government note (not bill) has sold at a negative yield, but the Japanese 10 Year yield dropped to 0.31%, declining below the previously all time low hit on April 2013 when the BOJ first announced its unprecedented QE program.
The next time anyone is stupid enough to mention monetary policy "normalization", just show them this.
Despite the authorities' best efforts to keep everything orderly, we know how this global Game of Geopolitical Tetris ends: "Players lose a typical game of Tetris when they can no longer keep up with the increasing speed, and the Tetriminos stack up to the top of the playing field. This is commonly referred to as topping out."
"I’m tired of being outraged!"
When the dollar falls, we are told it is logical. The empire is crashing and burning. When the dollar rises, the markets, we are told are manipulated. Well, the dollar is back, and the technical correction ended, near we told you it would.
The one thing that Jordan can't do in this war is appear to be weak.
"Abenomics is not having clear traction across the country," warned the head of Japan's auto lobby on Thursday as unexpectedly weak domestic sales revealed - yet again - what an utter disaster government policy is. "We feel a sense of crisis about the fact that cars are actually not selling," he exclaimed, saying that, as Reuters reports April sales tax hike was only partly to blame for the domestic sales weakness, citing the government's failure to boost consumption. But, but, but Japanese stocks are up 1000 points in the last 2 days so how can this be?
Through the overly-complex verbiage riddled with a copious number of contingencies, a simple message was actually able to surface. The net result is modestly hawkish and one consistent with our "Sooner but Slower" rate cycle perspective. Markets are being driven more by fear of missing the upside, and fear of under-performing peers and benchmarks, than by any other factor. This Pavlovian response has worked well in recent years and encouraged by the Fed. However, this pattern is in the 9th inning. Moreover, such herd-like behavior will run into great difficult due to dreadful market liquidity that is the result of regulatory over-reach; indications that were evident in markets over the past few weeks.
"Back in the halcyon days of summer, it seemed nothing could go wrong; but now, ...the uncertainties presently being generated have the potential to undermine two crucial kinds of trust – that one must have in the merits of one’s own exposure and that equally critical faith in the reliability of one’s counterparties. If it does, the third great bull run of the 20-year age of Irrational Exuberance could well reach its culmination, after a rally of almost exactly the same magnitude as and of similar duration to the one which ushered it in, all those years ago."
For those wondering if the CBR's intervention in the Russian FX market with its shocking emergency rate hike to 17% overnight calmed things, the answer is yes... for about two minutes. The USDRUB indeed tumbled nearly 10% to 59 and then promptly blew right back out, the Ruble crashing in panic selling and seemingly without any CBR market interventions, and at last check was freefalling through 72 74 76, and sending the Russian stock market plummeting by over 15%.
- Sydney Siege Sparks Muslim Call for Calm Amid Backlash Fear (BBG)
- Oil Spilling Over Into Central Bank Policy as Fed Enters Fray (BBG)
- Biggest LBO of 2014: BC Partners to acquire PetSmart for $8.7 billion (Reuters)
- Tremble algos: the SEC has hired... "QUANTS" (WSJ)
- When the bubble just isn't bubbly enough: There’s $1.7 Trillion Locked Out of China’s Stock Rally (BBG)
- Oil price slide roils emerging markets, yen rises (Reuters) - may want to hit F5 on that
- Libya Imposes Force Majeure on 2 Oil Ports After Clashes (BBG) ... and will resume production in days
- Amid Crisis, Pimco Steadies Itself (WSJ)
The fundamental issue confronting investors is about supply and demand. In recent weeks, as energy prices and other industrial commodity prices fell, investors focused on supply. The stimulative effect of the fall in prices, and the likely policy response by some major central banks, such as the ECB, and possibly the BOJ. This was good for equity markets and weighed on the euro and yen.
- JAPAN RULING LDP WINS 275-306 SEATS: NHK EXIT POLL
- JUNIOR COALITION PARTNER KOMEITO WINS 31-36 SEATS: NHK POLL
- JAPAN OPPOSITION DPJ WINS 61-87 SEATS: NHK EXIT POLL
- JAPAN INNOVATION PARTY WINS 30-48 SEATS: NHK EXIT POLL
- JAPAN COMMUNIST PARTY WINS 18-24 SEATS: NHK EXIT POLL
- JAPAN RULING COALITION SET TO WIN 2/3 MAJORITY, NHK EXIT POLL
One thing is certain about the ensuing “race to the bottom”. Japan’s retirement colony will end up with the hindmost. And they will surely burn professors Krugman and Summers in effigy—-even if driftwood is the only fuel they have left.