Yen Soars Most In Over Three Years, Nikkei Futures Plummet

Tyler Durden's picture

Two days ago we made a very simple observation: "Whenever Goldman openly commands the muppets to buy, you know the situation is serious, and Goldman has a lot of unwinding to do. Which is precisely what just happened following the Squid's reco to buy Nikkei September futures (NKU3) ahead of the BOJ meeting. What is Goldman's thesis in a nutshell: hope may be fading in Abenomics, but the "incentives for Governor Kuroda to use the [upcoming BOJ] meeting to signal a firmer and clearer commitment to the easing course, and to highlight the potential to do more, are high and rising." In other words, please bet the farm on more of the same jawboning that lead to a 20% loss for anyone who bought as recently as 2 weeks ago. Oh, and by the way, complete the sentence, whenever a client is buying from a Goldman flow trader, the Goldman flow trader is [____]." The answer, by the way, was "selling", as any muppet who may have taken Goldman's most recent advice just found out.

Overnight, following the disappointing BOJ announcement which contained none of the Goldman-expected "buy thesis" elements in it, things started going rapidly out of control, and culminated with the USDJPY plunging from 99 to under 96.50 as of minutes ago, which was the equivalent of a 2.3% jump in the Yen, the currency's biggest surge in over three years. Adding insult to injury was finance ministry official Eisuke Sakakibara who said that further weakening of yen "not likely" at the moment, that the currency will hover around 100 (or surge as the case may be) and that 2% inflation is "a dream." Bottom line, NKY225 futures have had one of their trademark 700 points swing days, and are back knocking on the 12-handle door. Once again, the muppets have been slain. Golf clap Goldman.

Of course, all of the above wouldn't be quite as hilarious if one didn't keep the following primary objective of the Bank of Japan in mind:

Price Stability


The Bank of Japan Act states that the Bank's monetary policy should be "aimed at achieving price stability, thereby contributing to the sound development of the national economy."


Price stability is important because it provides the foundation for the nation's economic activity. In a market economy, individuals and firms make decisions on whether to consume or invest, based on the prices of goods and services. When prices fluctuate, individuals and firms find it hard to make appropriate consumption and investment decisions, and this can hinder the efficient allocation of resources in the economy. Unstable prices can also distort income distribution. For example, in times of high inflation, people holding only financial assets whose value is fixed in nominal terms, such as bank deposits, will suffer a decline in the value of these assets in real terms.

Funny, nowhere in the above does it say "maximizing year end bonuses for Goldman traders and partners"...

There was little else notable with the world's attention now focusing on the German Constitutional Court's hearing of the constitutionality of the ECB's OMT operation. Spoiler alert: nothing will happen. Why? Because the biggest beneficiary of the ECB's generosity is not Greece, not Italy, not Spain. The beneficiary is best captured by the following chart (hint: DB stands for Deutshce Bank):

The key overnight news bulletin highlights, via Bloomberg:

  • Treasuries fall as JPY surges as much as 2.3% vs USD after BoJ kept its stimulus unchanged and refrained from expanding tools to address bond-market volatility.
  • BoJ left unaltered its one-year fixed-rate loan facility and plan for JPY60t-70t annual rise in monetary base; Governor Kuroda said the central bank will discuss longer funding operations if they become necessary
  • Turkish riot police retook Istanbul’s Taksim Square, the center of nearly two weeks of unrest, from anti-government activists today, using tear gas and water cannons to break pockets of resistance
  • The Turkish central bank said it will tighten monetary policy to support currency
  • Former Goldman Sachs Asset Management chairman Jim O’Neill said investors should get used to U.S. yields nearer 4% than 2%, sees recovery of “equity culture” and end to bond market rally
  • The ECB’s OMT bond-buying plan may force Germany’s top court to choose between market stability and the principles of democracy, lawyers for political groups that oppose the plan said at a hearing; court will consider the case starting today
  • Germany’s finance minister Schaeuble said the ECB can’t be targeted in a German court; ECB’s Draghi said he trusts the constitutional court
  • Citigroup could lose as much as $7b on currency swings if Portales Partners analyst Charles Charles Peabody is right, putting the analyst at odds with peers who say the stock will be the best performer among big U.S. banks in the year ahead
  • U.K. industrial production unexpectedly rose in April, boosted by increased output at oil and water companies. Manufacturing fell after gains in February and March
  • Sovereign yields surge. Nikkei -1.5%; China closed for holiday. European stock markets, U.S. equity index futures gain. WTI crude, metals fall

SocGen's FX team lays out the key macro events:

The week got off to a calm start for financial markets, but will the German Constitutional Court hearings unsettle them today?

German Finance Minister Schaeuble, ECB member Joerg Asmussen and Bundesbank President Jens Weidmann will speak. The question is whether Germany will consider the ECB's Outright Monetary Transactions (OMT) program constitutional, given that the country is attempting to limit its potential commitment in the event OMT is activated. Although the German position has been known for a long time, any move to block the process could prompt tension on peripheral yields. We note that 10Y Bonos and BTPs yields increased last week, as the ECB indicated that it was in no hurry to activate OMT or use other non conventional measures. Although fire walls were put in place last year to contend with the euro debt crisis, they still have not been tested: until proven effective, the euro debt crisis will remain a downward risk factor for the EUR.

Turning to the UK, we will be looking out for industrial production data: any positive surprise will continue to put off further Quantitative Easing by the BoE. Could the EUR/GBP rapidly fall back to recent lows of 0.8430/0.84? That is the main risk.

* * *

DB's Jim Reid concludes the overnight event recap:

The Japanese central bank wrapped up its two-day policy meeting overnight by sticking to its target of increasing the monetary base by JPY60-70 trillion a year and keeping other policy unchanged. In what is likely to disappoint those looking for measures to stem to the volatility in JGBs, the BoJ refrained from making any reference to extending the duration of fixed-rate fundsupplying operations, as was expected by some forecasters. Also in terms of JREIT and ETF purchases, the BoJ refrained from expanding the pace of purchases which will likely disappoint equity markets. The central bank left the door open to future changes though, saying that it will “make (policy) adjustments as needed”.

The immediate market reaction following the BoJ’s policy statement saw the USDJPY and Nikkei futures lose 1% and 2.5% respectively but both have recovered some losses since. Japan 30yr yields are now unchanged after initially spiking 2bp. In its outlook, the BoJ described the economy as being on a moderate recovery path and that some indicators suggest a rise in inflation expectations. In terms of other measures, the BoJ said that it will disperse loans totalling JPY3.15trillion to 70 financial institutions under a scheme to help stimulate bank lending.

This all follows a remarkably steady session yesterday where the S&P500 closed broadly unchanged (-0.03%) after spending virtually all of the session range-trading within 4pts of its closing level of 1642.8. Sentiment in equities was buoyed at the open after S&P announced that it had changed its outlook on the US sovereign rating to “stable” from “negative”. S&P appeared to dampen the notion that the US could regain its AAA rating soon though, noting that no sovereign has ever recouped its AAA rating in less than 9 years. Indeed, it took Finland and Canada nine years to return to AAA according to the agency. S&P expects that net general government debt as a share of GDP will stabilise at around 84% for the next few years, allowing policymakers some additional time to take steps to address pentup age-related spending pressures.

Outside of equities, fixed income asset classes were again pressured by the rise in rates after 7yr, 10yr and 30yr UST yields hit fresh 1 year highs yesterday. This came despite dovish comments from St Louis Fed president James Bullard who said that he would support the continuation of QE in its current form if inflation remains below the Fed’s 2% target. Bullard said he wants “to see some reassurance” from inflation data “before we start to taper”. With the rates backdrop, protection in the major credit indices remained fairly well bid with CDX IG (+3bp), European iTraxx (+2.4bp) and Crossover (+14bp) all wider on the day while cash markets traded with a softer tone.

On a related note, EM weakness remains one of the main market themes globally. Mexican peso bonds are garnering a fair amount of attention following yesterday’s selloff that saw 10yr mbono yields add 17bp to close at 5.66%. The magnitude of the selloff has caught a number of investors off guard. Foreign holdings of fixedrate peso bonds reached a 13yr peak of 58% of outstanding in May 7th, around the time that 10yr yields reached their a record low of 4.43%. Since that point, 10yr yields have sold off by almost 120bp as foreign investors trim positions in a market that has been described as “one-directional”. The fact that the Mexican peso is 7.8% weaker during the same time frame is not helping matters for foreign investors either. The Mexican finance ministry will be auctioning 3yr, 5yr and 30yr bonds today as is probably worth looking out for.

Elsewhere Asian credit spreads are another leg wider overnight as the pressure continues to build. The Asia iTraxx IG index is 10bp wider on the day as we type and is about +40bp off its recent tights in early May. Indonesia and Philippine 5-year sovereign CDS are also 18bp and 15bps wider respectively in overnight trading and have now widened by about 60bps and 20bp since Bernanke’s JCE testimony on the 22nd May. Indonesia 10yr local rates are about 25bps higher overnight at 6.60% or about 110bps more than where they were a month ago. In corporate credit Asian HY is generally about 1pt lower overnight.

Elsewhere in Asia, equities are trading with a cautious tone with the Hang Seng (-0.8%) and KOSPI (-0.6%) seeing moderate losses. The Australian dollar is 0.5% weaker against the USD after disappointing housing finance numbers, extending its two month losing streak against the USD to almost 11%.

Turning to the day ahead, attention will turn to the German constitutional court’s hearings on the ECB’s OMT programme which will be attended by the Bundesbank’s Jens Weiddman and the ECB’s Joerg Asmussen. The two-day hearing begins today. The US data calendar features wholesale inventories, JOLTs job openings and the NFIB business optimism survey. The market's reaction to the BoJ and the price action in EM will likely dominate the agenda though.

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fonzannoon's picture

Futures down and treasuries selling off. This is quite the cunundrum.

eclectic syncretist's picture

Fiat is just beginning the process of running scared, looking for a place it can be safe. A lot will end up in PM eventually.

markmotive's picture

BofJ has lost its grip. Kyle Bass was right to warn that they'd have to expand QE to achieve their goals.

GetZeeGold's picture



Full power to the printers.....when it all gets to heavy.....don't look down.

gatorengineer's picture

Be carefull they still have 3 big rounds in the gun.  Likely order in which they will be fired:

1)  China prints big should be good for a 5% pop.

2)  Europe prints big, should be good for a 10% pop.

3)  Benny goes fuller retard should be good for a 20% pop.


The race to the bottom isnt gonna be smooth....

fonzannoon's picture

Ben is going to get that 10yr below 2.25% today. Looks like he is on it already. Can't have that.

greatbeard's picture

>> will end up in PM

Don't be to sure about that.  Gold has a solid target on it's back and gets blasted on any news. When you are printing trillions of funny money, throwing a few billion at gold to cover your trail is chump change.

Non Passaran's picture

You may be right (and the current price movement is proving you are) but the price is already low. 

Do you really think CBs will hold their presses until gold drops below $1,200? 

I'm done speculating. Now I'm just buying (PMs).

Non Passaran's picture

I think they have a typo - "US taxpayer facing $7 bn hit on Citi's dollar derivatives" seems correct

spanish inquisition's picture

Wouldn't it be cool of you could record everything around the world and your friends doing Gods work could listen for stuff that was about to happen, say phone calls and emails in Japan. Not that you would recommend clients to do anything based on that information, it would just be neat to know.

EscapeKey's picture

Looks like everyone is cashing out to go house hunting in San Francisco.

Even with SF prices, 2.7 trillion Euro *might* get you a 2 or 3 bed flat in the centre of town.

Dr. Engali's picture

Sell offs across the board. Somebody needs some liquidity.

NoDebt's picture

Somebody needs to cover their margin calls.

fonzannoon's picture

Nah it's tapering. I know because the teevee told me so.

RSloane's picture

There was a reason I said I was in freezeframe until Tuesday.

/EW channel blog off

No worries though I smeeel some repair in the offing.

fonzannoon's picture

between stocks and bonds this is like trying to sneak through a wood chipper right now.

I'm hangin out. I keep thinking I should be picking up some yield on discount here and waiting for stocks to take a 10-15% hit but Japan is such a wildcard.

Yen Cross's picture

  Look at sept13 Nikkei futures

     Japan 225    Sep 13    13,035.50    13,568.50    13,625.50    12,973.50    [-533.00    -3.93%]    10:52:36

fonzannoon's picture

2.27% on the 10yr while CNBC ignores it and screams deflation. I can't wait till the go full retard and tell us treasuries are rallying as we cross 2.5%.

Yen Cross's picture

   I know Fonz. Those idiots at CNBS couldn't tie their shoes without directions. It's going to be ugly today, unless Chairsatan pulls forward some extra POMO cash.

GetZeeGold's picture



I think you just heard from one of them.

fonzannoon's picture

Would someone care to dispute that futures are down and treasuries are selling off?

Becky? Andrew?


Yen Cross's picture

     They're too busy blowing squeaky Jack Welsh.

fonzannoon's picture

he likes to talk from his big fat gut.

disabledvet's picture

True below...not true that Jack is fat. "Skinny as a Wall Street securities analyst." So rather than speculating here I think for a change we could include some data. 4% growth is pretty good. That says inflation to me. Yet those yields aren't responding to said reality. In the USA we have sub 2%...yet yields are suppose to rise to..."fit the risk profile"? Of what exactly? JGB's are "locally owned." That ain't true of US treasuries bitchez. And can Europe compete with East Asia Inc? I say good luck with. This has currency mayhem written all over it...long a "solid 2 percent" as a consequence.

GetZeeGold's picture



You gotta think Jack is laughing his ass off at Jeffrey these days.

EscapeKey's picture

Nah, they'll tell us about all these great bargains, and that the Dow would now be at 40,000 if it wasn't for those loons in Washington DC.

Boeing Boy's picture

FTSE down to 6300, quite the sell off.

zjxn06's picture

When does that big red 55,600,000,000,000 Euro bar go boom?

malikai's picture

Another 100pips. I love you, Abe, even though everyone's going to hate you soon enough.

philipat's picture

Even Gold is selling off again.

GetZeeGold's picture



How much paper do you want for that gold?


We've got truck loads of that crap lined up out back and stretched around the corner.

Peter Pan's picture

There is a possibility that a final reckoning is in the wings. No debt, some gold, some cash and hard assets is the only way to go. If you are in the USA buy a gun and booby trap your front yard.

greatbeard's picture

>> booby trap your front yard.

I'd have to advise against the booby trap thing.  Legally, you'd be in a heap of poo if someone got hurt.  I've looked into it.  Otherwise, your plan of action has merit.



Peter Pan's picture

The suggestion to booby trap is metaphorical and you are right. Somehow I think the vast majority of the population will be glued to their TV's waiting for Godot. The others will be out looting the supermarkets when the ......hits the fan.

Should I booby trap the front door bell instead? LOL

greatbeard's picture

>> suggestion to booby trap is metaphorical

No problem bro, I just wouldn't want a kindred soul to make a tactical blunder.

Hulk's picture

Just be ready to turn on your sprinklers, that will show em !!!

Non Passaran's picture

Also it can get nasty if you get drunk and forget about. 

noless's picture

I sober up for good the second shit gets real.

NoDebt's picture

Did somebody just say NoDebt?  The NSA sent me a Tweet saying somebody was talking about me on ZH.  ;)

I will always agree to the recommendation of getting away from debt.  In fact, agreed about everything except booby-trapping your front yard.  Tried that.  Killed off most of the neighbors dogs in a couple months.  Plus the big explosions in the middle of the night kept waking me up.  More trouble than it was worth.


Peter Pan's picture

Best laugh I have had all day.

+ 50,000.

ZippyBananaPants's picture

What difference at this point does it make?

GetZeeGold's picture



It was such a long time ago.

Dr. Engali's picture

Individuals or firms maked decisions based on price stability? How in the hell is a firm supposed to hedge against a currency gyrating all over the place? Yet another failure of the central banks.

The Contrarian Investor's picture

Yesterday: "The Eurozone crisis is over" - François Hollande

Today: GGB +93 bps - Bond market

One of them is wrong.


Non Passaran's picture

It seems to me Greek bond investors are expecting pull inflation due to the speedy recovery and the lack of capacity to serve the surging demand for raw materials and finished products.

hugovanderbubble's picture

Spain debt haircuts in sovereign and subgovernment debt INMINENT



franzpick's picture

CAC, FTSE and Euro50STOXX down 1.5 to 2% tonight have taken out last week's lows: watch it here, click 'majors' to select indices: