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BOJ QEases: Kuroda's "Shock And Awe" Post-Mortem From Goldman And SocGen

Tyler Durden's picture




 

First, from Goldman's Themistoklis Fiotakis

Bank of Japan Delivers; Dollar is Bid Across the Board in Response

Earlier this morning the BoJ introduced a comprehensive change to its monetary policy framework. The asset purchasing program will be merged with the outright JGB purchase program (rinban), and JGB purchases will be expanded to include all maturities, including 40-year bonds. The pace of JGB purchases by the BoJ will be accelerated to ¥7trn per month from just under ¥4trn currently (on a gross basis), and purchases of ETFs and J-REITs will also be increased. The main operating target for money market operations was changed to a monetary base control (a quantitative index) from the uncollateralized overnight call rate.

The size and speed of these measures were a dovish surprise to markets. The Yen has weakened against a number of currencies; indicatively $/JPY moved from 92.9 to 95.4. The JPY is returning to levels prevailing in the weeks before the market started to reflect concerns about a potential BoJ disappointment. Given the dovish surprise vis a vis initial expectations, the risks are for a $/JPY move higher in the near term. Interestingly, the move in the Yen has also benefited the Dollar more broadly, with DXY moving up 0.7% this morning. The Dollar move combined with market expectations of a dovish ECB led the EUR down to 1.2792 this morning (from 1.2850).

The Nikkei closed up over 2% despite falling around 1% earlier in the session. Long-term Japanese rates declined, with the 10-year rate falling by around 10bp. The largest impact, however, was at the long end of the curve, with the 30-year yield down 22bp. The flattening of the curve is in line with our fixed income views and has benefited our trade recommendation for a 10s20s JGB flattener; we initiated our recommendation last Thursday at a level of 92bp and it is currently at 77bp, 12bp away from the target of 65.

Events today include the ECB and BoE meetings. For the ECB, we do not expect any change to interest rates, and any easing is more likely to come in the form of credit easing measures that target the impaired transmission mechanism within the Euro area. We expect the BoE to keep policy unchanged as it prepares to extend the FLS and explore other non-QE easing options.

* * *

And next, from SocGen's Kiyoko Katahira

BoJ announces bold policy change

The BoJ meeting concluded with an introduction of a new “quantitative and qualitative monetary easing,” aiming to achieve the inflation target of 2% within a time horizon of about 2 years. Overall, the decision made by the BoJ was indeed “bold”, and the market reacted positively - the yen dropped (USD/JPY jumped from 93 to close to mid-95) and the Nikkei stock surged. The yield on JGBs from 5 years to 30 years broadly declined, with the 10y yield reaching the lowest since June 2003.

The BoJ’s decision – abolished policy rate, APP and bank note rule

The BoJ has decided the following:

  1. Intoduction of the “monetary base control”: The bank will shift the main operation target from the current policy rate (uncollateralized overnight call rate ) to the monetary base. The BoJ will conduct money market operations so that the monetary base will increase at an annual pace of 60-70 trillion yen. The monetary base which was 138 trillion yen as of end of 2012 will be increased to 200 trillion yen (+45% yoy) by the end of 2013 and to 270 trillion yen (+35% yoy) by the end of 2014.
  2. The bank will also terminate the Asset Purchase Program (APP) and combine with the regular JGB purchases known as Rinban operations. Purchases of JGBs will be increased substantially, and the JGBs held will increase at an annual pace of about 50 trillion yen. As of end of 2013, the bank’s holding of JGBs will increase to 140 trillion yen as compared to 89 as of end of 2012. The bank will further increase the JGBs held to 190 trillion yen by the end of 2014. It has also decided to purchase JGBs with longer maturity – the average remaining maturity of the JGB purchases will be extended from 3 years to about 7 years.. This will allow the bank to purchase JGBs with all maturities including 40-year bonds. It has also decided to increase the purchases of ETFs by 1 trillion yen in 2013 and another 1 trillion yen in 2014. As for J-Reits, the amount is small, but will increase by 300 billion yen in both 2013 and 2014.
  3. The bank has also decided to suspend the so-called “Bank note rule” which limits the amount of JGBs it can hold on its balance sheet to the amount of outstanding bank notes. However, in our view, this rule has already been violated in practice and we see little impact.

Overall, the decision by the BoJ was indeed bold. It will increase the JGB purchases substantially from the current pace (about 4 trillion yen per month) to about 7 trillion yen per month. It has combined the two separate asset purchase programmes which will help increase transparency of policy and make communications with the market more straight-forward. The Rinban operations tended to be overlooked by a market that had been focused on the APP. It has extended the average remaining maturities of the JGBs to be bought, allowing it to buy even super-long JGBs, which will certainly reduce yields along the yield curve, just as Mr Kuroda has stressed during his speech over the last few weeks. The BoJ has also announced to set forums for enhanced dialogue with market participants – aiming to exchange views on money market operations in general.

As we had expected, the new BoJ has broken with the cautious policies of the past and has started a monetary policy that can be called “bold”, just as the PM Abe has demanded. We wait to see for further implications ahead.

 

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Thu, 04/04/2013 - 06:43 | 3407193 HD
HD's picture

A dovish surprise? To who? All these central banks know how to do is print moar stronger.  It's just desperation at this point.

Thu, 04/04/2013 - 06:55 | 3407206 markmotive
markmotive's picture

Ummm, so is it working?

Are the bankers still winning?

http://www.planbeconomics.com/2013/04/documentary-all-wars-are-bankers-w...

Thu, 04/04/2013 - 07:04 | 3407228 HD
HD's picture

Japan has been printing for two decades and NOW they are just getting serious. It should only take another decade or two for the party to really get started.

 

Thu, 04/04/2013 - 07:08 | 3407236 fonzannoon
fonzannoon's picture

another decade or two and every one of us on here will have imploded.

Thu, 04/04/2013 - 07:11 | 3407242 HD
HD's picture

Indeed. Starting to wish I had taken the blue pill...

Thu, 04/04/2013 - 06:45 | 3407195 GOSPLAN HERO
GOSPLAN HERO's picture

Get physical gold and silver while it's cheap.

Thu, 04/04/2013 - 07:04 | 3407227 Headbanger
Headbanger's picture

And buy all the guns and ammo you can get too! And learn how to use them well.

Thu, 04/04/2013 - 07:06 | 3407231 new game
new game's picture

waiting patient

critical points 1520 and 26

 

Thu, 04/04/2013 - 07:10 | 3407235 new game
new game's picture

i put fwd a new currency standard;

as follows;

22's = cent

380's=nickel

9mm's=dime

45's=quarter

223/308=dollar

money velocity=fsp=bang for buck...

all values approx.

Thu, 04/04/2013 - 07:17 | 3407250 Oldballplayer
Oldballplayer's picture

Try to buy 308 win. It's already more than $1.

Thu, 04/04/2013 - 07:26 | 3407261 Headbanger
Headbanger's picture

SKS..  It's old but I can still feed it. And it has a handy kitchen utensil attached.

Thu, 04/04/2013 - 07:34 | 3407272 fredquimby
fredquimby's picture

I played with a S&W .460 revolver last weekend. OMFG.

I would guess that ammo would be = $5 at least!!

 

 

Thu, 04/04/2013 - 08:08 | 3407330 Pegasus Muse
Pegasus Muse's picture

223 = $1.25 - $1.33/rnd, new, in bulk, if you can find it

Thu, 04/04/2013 - 07:10 | 3407241 OliverTwist
OliverTwist's picture

Every time I go to my shop to buy some coins it's sooo funny. I have to wait an hour to get them because they are still too hot to touch from the mint!

I don't know much about classic economy but how was this shit about price building process through offer and demand ??

More demand leads to smaller prices .... or was it the other way?? I'm confused ... I think I have to read more books or watch more TV to educate myself

;)

 

Thu, 04/04/2013 - 08:40 | 3407411 Headbanger
Headbanger's picture

Yep.  Be sure to watch all the CNBS you can to be a well educated induhvidual!

Thu, 04/04/2013 - 06:46 | 3407197 FreeNewEnergy
FreeNewEnergy's picture

Yep. No real surprise whenever any central bank decides to print moar. It's expected.

Japan = Keynesian shithole.

Thu, 04/04/2013 - 07:00 | 3407220 agent default
agent default's picture

As opposed to the Fed which is just so fucking tight.\sarc

Thu, 04/04/2013 - 06:46 | 3407199 fonzannoon
fonzannoon's picture

"Long-term Japanese rates declined, with the 10-year rate falling by around 10bp. The largest impact, however, was at the long end of the curve, with the 30-year yield down 22bp".

Wow the closer you get to hyperinflation the more interest rates drop?

Thu, 04/04/2013 - 07:00 | 3407222 agent default
agent default's picture

No they just become irrelevant.

Thu, 04/04/2013 - 08:11 | 3407343 FreeNewEnergy
FreeNewEnergy's picture

fonz, in another thread you said something to the effect that when the SHTF, New York will be the place to be. I am in upstate NY - Rochester. Did your statement apply to the city of NY or the whole state, and, could you possibly elaborate. With the huge property taxes here, I'm ready to bail, but maybe you have a different perspective.

Thanks in advance.

Thu, 04/04/2013 - 06:49 | 3407201 waldo simon
waldo simon's picture

Makes James Rickards thesis in "Currency Wars" even more prophetic

Thu, 04/04/2013 - 06:51 | 3407204 new game
new game's picture

re-ramp

calling shalom>you have been outdone!

85b, come on that's nothin

guarantee homes to homies

new cars to a pulse

re ramp the bubble

echo bubble repoc...

Thu, 04/04/2013 - 06:54 | 3407208 JustPrintMoreDuh
JustPrintMoreDuh's picture

Ludicrous speed ... GO!!!!!!!!!!!!!!!

Thu, 04/04/2013 - 06:58 | 3407218 Peter Pan
Peter Pan's picture

We are now fast forwarding to destruction. Why wait any longer ?

Thu, 04/04/2013 - 07:05 | 3407232 Headbanger
Headbanger's picture

They went PLAID!

Just had to say it..

Thu, 04/04/2013 - 06:54 | 3407210 i8emallup
i8emallup's picture

2 years of nitrous oxide into an economic engine that is faulty and tired.  There is a fair chance of unexpected negative outomes.

Thu, 04/04/2013 - 06:57 | 3407215 Peter Pan
Peter Pan's picture

The last six letters of the word Keynesian are an anagram for the word insane.

We are now seeing insanity prevail as a policy option in different shapes and forms across the globe.

Thu, 04/04/2013 - 07:04 | 3407229 IMA5U
IMA5U's picture

Long Gold till it goes to Zero (its a hedge!)

Thu, 04/04/2013 - 07:22 | 3407260 GOSPLAN HERO
GOSPLAN HERO's picture

You should hold paper dollars.

Dump your gold.

LOL.

Thu, 04/04/2013 - 07:08 | 3407234 MythicalFish
MythicalFish's picture

900pts???! Watch out for dead Barings traders downriver

Thu, 04/04/2013 - 07:22 | 3407258 timbo_em
timbo_em's picture

So I buy Gold and sell Yen? Is it really that easy?

Thu, 04/04/2013 - 07:27 | 3407264 fredquimby
fredquimby's picture

that target the impaired transmission mechanism within the Euro area.

 

WTF does that mean?

Thu, 04/04/2013 - 08:14 | 3407350 Non Passaran
Non Passaran's picture

It means what TD reported recently, that they're considering special loans for SME's and similar nonsense

Thu, 04/04/2013 - 07:27 | 3407265 disabledvet
disabledvet's picture

Fade the rally...

Thu, 04/04/2013 - 07:36 | 3407279 Mr. Hudson
Mr. Hudson's picture

Is the sky falling faster in Japan?

Thu, 04/04/2013 - 07:59 | 3407313 gwar5
gwar5's picture

Dr. Paul Craig Roberts does a pretty good job of nutshelling the (frightening) Central Bank desperation and and why bank/pension confiscations are coming to deal with an unavoidable tipping point and sudden currency/economic collapse.

No surprises here for ZHers. But it is fairly concise for your skeptical friends and family who will soon be your new roommates if they don't prepare for themselves.

Regarding CBs and QE:

"...(QE) result is an increase in supply and a decrease in demand (of USD). That means a falling price. The orchestration against bullion cannot ultimately succeed. It is designed to gain time for the Federal Reserve to be able to continue financing the federal budget deficit by printing money and also to keep interest rates low and debt prices high in order to support the banks’ balance sheets."

"When the Federal Reserve can no longer print due to dollar collapse, which printing would make worse, bank deposits and pensions will be grabbed in order to finance the deficit."

"If the dollar drops sharply in exchange value the Fed can’t control the interest rate, and the bond price, and so all of the bubbles would blow up."

"...We not only have the BRICS moving away from the use of the dollar, but also China, Japan, and all of the East Asians."

...So this drop in demand for dollars when the Fed is creating one trillion new dollars every year means the exchange value of the US dollar is untenable..."

"...The first move out of the dollar is in to gold... a sharp movement out of dollars and... At that point the Fed has lost control and the whole scheme blows up."

"...So that is what the situation is. They are desperate. China sits on the largest collection of dollars in the world and they... will be very glad to get out."

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/4/3_For...

Thu, 04/04/2013 - 08:23 | 3407375 SDRII
SDRII's picture

The kamikaze policies worked out so well during WWII....

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