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BOJ Approaches Limit Of Its Existing Bond Buys, As Doubts Spread It Will Boost QE

Tyler Durden's picture





 

One of the conventionally accepted "truths" (as wrong as they may end up in retrospect) for 2014 is that in addition to the ECB eventually commencing Fed-style QE (and if it doesn't, anyone holding peripheral bonds at these idiotic levels - watch out), the BOJ will launch an expanded dose of bond monetization as soon as April (certainly not last night, despite what some were expecting) maybe because so far Abenomics has failed to boost wages for 18 consecutive month, maybe because the coming sales tax hike is sure to crush any fleeting nominal economic gains, or maybe energy import prices just aren't stratospheric enough yet and those record monthly trade deficits could be... record-er. So yes: a new QE may or may not happen, but in the meantime, a new development is emerging: Japan is near the limit for the bond buys it can do under its current mandate.

As Japan Times explains, the BOJ bought ¥6.8 trillion worth of sovereign notes in December, the least since it boosted the program to more than ¥7 trillion a month in April, data compiled by Totan Research Co. show. The buys may slow further to avoid exceeding the average annual target of a ¥50 trillion increase in the BOJ’s holdings for the year, said Tokai Tokyo Securities Co. and Totan, a Tokyo-based research unit of money-market broker Tokyo Tanshi Co. The holdings swelled by ¥50.3 trillion in the nine months that ended Dec. 31.

Looks like the BOJ was in such a hurry to boost the Nikkei and crush the Yen, it already surpassed its annual monetization quota!

So what happens if we do get a slowdown?

Well, the JPY, which since early November has been selling off by the boatload, pricing in expectations of at least one more QE in April will soar. And then the verbal diarrhea will really begun as Kuroda "could signal to the market that a slowdown does not represent a scaling back of his accommodative policy or he could raise the holdings ceiling, according to Sumitomo Mitsui Banking Corp." In other words, forward guidance is about to come to Japan. Alas, forward guidance does not work, and should the last dynamo of real unsterilized monetary injection, Japan, flicker then die, all bets would be off.

The BOJ’s monthly purchases will decline to about ¥6.4 trillion,” Kazuhiko Sano, the chief bond strategist at Tokai Tokyo Securities, told reporters and institutional investors Wednesday. “I don’t think the decreases would have a large impact on the market, considering investors paid little attention to the decline that we saw in December.

Well, now that you pointed it out, investors - which these days are mostly clueless algos programmed by 19 year old math PhD's will be paying very close attention.

In the meantime, everyone is hoping and praying that any slowdown in purchases resulting in a market drop, would be met with a prompt pick up:

The BOJ will boost stimulus by the end of September, 80 percent of the 35 economists polled last month estimated.

 

“The amount the BOJ needs to buy this year is about ¥6.5 trillion a month” after taking into account its bond holdings that come due, Izuru Kato, the president of Totan, wrote in a research note on Jan. 9. “The BOJ is more likely to boost purchases should the decrease destabilize bond yields.”

 

“Investors think the BOJ is just taking a break and will increase buying when the effect of the sales tax hike comes in,” said Tadashi Matsukawa, the head of fixed-income investment at PineBridge Investments Japan Co. “Japan’s yields are staying at these levels because of this assumption.”

Well, maybe not. In a note released overnight, Bloomberg is reporting what we have said all along: epic QE in Japan may not be driving up the right inflation - namely wages - but it sure is sending the bad kind of inflation higher, that of import prices for food and energy, and other commodities. Which is why for the first time, many are refuting the rumor first launched in early November that a BOJ expansion in QE is just around the corner, and may instead be delayed.

From Bloomberg:

Accelerating inflation is prompting analysts from HSBC Holdings Plc. to Daiwa Securities Co. to push back forecasts for when the Bank of Japan may add to record monetary easing.

 

The percentage of economists predicting an expansion of already unprecedented stimulus between April and June fell to 33 percent from 56 percent three months ago in a Bloomberg News survey of 36 economists conducted Jan. 10-15.

 

With the BOJ’s preferred benchmark gauge showing inflation at more than half of its target 2 percent pace, the central bank may wait to assess trends in wages and the effects of a sales-tax increase in April before deciding on any extra stimulus. Governor Haruhiko Kuroda and his board will keep policy on hold when a two-day meeting ends today, according to all economists in the survey.

 

“The speed of inflation is the main reason for pushing back my forecast,” said Maiko Noguchi, senior economist at Daiwa Securities and a former central bank official. “The BOJ can take a breath and watch developments in prices and the impact of the sales-tax increase.”

 

Consumer prices excluding fresh food rose 1.2 percent in November from a year earlier, the fastest pace since 2008. For the final quarter of 2013, analysts estimate inflation was 1.1 percent, according to a separate poll, nearly three times economists’ 0.4 percent forecast in a survey in April last year.

Needless to say, a delay in QE would crush Abenomics, as it would mean a surge in the Yen, a plunge in the Nikkei - really his only accomplishments so far - even as wages never rose, pushing the economy back in the deflationary limbo from whence it came as everyone rushes to sell financial assets.

What happens then? Well... "The BOJ’s total assets have climbed to ¥229 trillion, or 48 percent of the nation’s nominal gross domestic product. The central bank aims to increase its balance sheet further to ¥290 trillion by the end of this year."

Richard Koo adds, "It may be too late to prevent long-term rates doing something crazy” should the BOJ hold off on tapering before inflation reaches the target, said Richard Koo, the chief economist in Tokyo at Nomura Research Institute Ltd. The stimulus is leaving Japan at risk of falling into a quantitative-easing “trap” of being unable to taper without a surge in long-term rates and subsequent damage to the recovery, according to Koo, a former Federal Reserve economist."

Good luck Japan. You will need it very soon.

 


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Wed, 01/22/2014 - 09:03 | Link to Comment Headbanger
Headbanger's picture

It's way too late!

Wed, 01/22/2014 - 10:18 | Link to Comment Chief KnocAHoma
Chief KnocAHoma's picture

Maybe we have evolved to a point where coordination by CBs will save us all. If the slopes print, and the chicoms print, and the euro trash prints (still gotta get those Hunns over their fear of hyper inflation), and the Muslims print, and the Jews print (wait ... that was repetitive) then maybe all boats will rise in the sea of money.

Maybe increased efficiency and the machines will make us all rich if we just print enough or create enough digitally.

Of course we still have to have energy, and there ain't enough to go around. So... somebody has to die. Who will it be?

Wed, 01/22/2014 - 09:10 | Link to Comment youngman
youngman's picture

Japan really has some problems...it has been doing this for 20 years now...but i think they are finally realizing they no longer can fool the world...and with China against them now and the nuclear plant problems...they have some work to do...unfortunatly the new generation does not like to work...

Wed, 01/22/2014 - 09:32 | Link to Comment satoshi101
satoshi101's picture

Take a close look at the USA hairlip, they make the JAP's look like 148 MENSA IQ prom-queen's.

The USA is a failed penal colony, and the JAP's fell into WWII as a trap, and all they need is a good leader to pull them out of their morass.

I would say that the real problem post WWII is that the JAP's were led by the USA, and that road has led them to hell.

Coming soon is real JAP leadership, that tells the USA to go fuck itself and eat shit.

 

Wed, 01/22/2014 - 09:40 | Link to Comment i_call_you_my_base
i_call_you_my_base's picture

"I would say that the real problem post WWII is that the JAP's were led by the USA"

LOL, I wonder why?

Wed, 01/22/2014 - 09:56 | Link to Comment Toolshed
Toolshed's picture

"Coming soon is real JAP leadership"

This statement had me ROTFLOL! What an utter moron you are satoshi101. The fucking Japanese are the scourge of the planet and have likely killed us all with their raging stupidity at Fukushima. The only good thing that comes from Japan are the hot young babes. And they are only good as long as they keep their mouths shut.

Wed, 01/22/2014 - 19:48 | Link to Comment BigJim
BigJim's picture

 The USA is a failed penal colony, and the JAP's fell into WWII as a trap, and all they need blah blah satoshi blah...

Yeeeesssss... all that raping and pillaging they were doing during the first half of the 20th C throughout Korea... Manchuria... China... Singapore... Viet Nam... the Philippines... was a trap laid for them by the evil USA.

And it's 'harelip', not 'hairlip'... quite an ironic slip-up given you're using it to denote ignorance.

Wed, 01/22/2014 - 10:35 | Link to Comment Martel
Martel's picture

unfortunatly the new generation does not like to work...

The insane Japanese work ethics hurt the country, especially their birth rate. A shorter work week for the men, more equal labor participation for the women, would enable them to survive. Many young men drop out completely, because a future as a 24/7 corporate drone does not sound that appealing. Women don't want to get married, because it means becoming a neglected housewife as the husband is either at work, or exhausted.

Wed, 01/22/2014 - 09:13 | Link to Comment disabledvet
disabledvet's picture

Well, we all know what happened when the USA tapered. "It wasn't pretty." I do agree "about a billion years ago living in North America was a bad place to live in." The Moon was really "working us over pretty good." My personal view is that Earth "retaliated" by running into the phucker causing a monetary (100 million year?) loss of gravity...meaning a lot of dinosaurs became the world's first Space Travellers. I'm not the human race is gonna make it...but I am saying "earthlings are far better space travellers than the dinosaurs ever were." In theory as a consequence of this rather unique geological deformation "North America should be the richest, warmest, happiest place on earth." it's just not happening unfortunately. so..."I will watch Japan closely" as I think everyone else should too. It all really feels like "a lot of dinosaurs attempting space travel again."

Wed, 01/22/2014 - 09:20 | Link to Comment negative rates
negative rates's picture

The dinosaur could run, but he could not hide.

Wed, 01/22/2014 - 09:58 | Link to Comment bobert
bobert's picture

Vet:

The dino's drowned.

And, it was only about ten thousand years ago.

It's easy to obscure reality when things are put in terms of billions and trillions. Just ask the Japanese.

Wed, 01/22/2014 - 12:09 | Link to Comment Hedgetard55
Hedgetard55's picture

Soft tissue found in T-Rex bones proves they are merely thousands of years old, not millions, but it will be denied to the end by the academics who have so much invested in their cw.

Wed, 01/22/2014 - 09:13 | Link to Comment madbraz
madbraz's picture

Yes, long term rates are going to do something crazy, something they've been doing since 1990 despite QE 1,2,3,4,5,6,7,8,9,10 since:  they will go down once again.

 

yawn

Wed, 01/22/2014 - 09:17 | Link to Comment spanish inquisition
spanish inquisition's picture

They haven't printed enough to release the pent up animal spirits. People aren't smiling enough?

Wed, 01/22/2014 - 09:17 | Link to Comment gwar5
gwar5's picture

Need moar repression. 

 

Solution for BOJ is to just change the way they calculate official inflation, Problem solved. The FED had foresight and prepared for the crises by changing the way they calculate inflation and GDP ahead of the curve. They are so smart.

 

Wed, 01/22/2014 - 09:18 | Link to Comment negative rates
negative rates's picture

Good, that gives me 2 more months to prepare for the surprise.

Wed, 01/22/2014 - 09:30 | Link to Comment satoshi101
satoshi101's picture

U r the average METH consuming, TV watching ameriKKKan, what would U know about Jap culture and the USA soddom&gomorah?

 

The real issue here is who goes down first? YEP, japan is fucked, but they do have a cohesive, culture,

If PUSH comes to shove and both county's go full-retard, its the USA that will go down and hard, ... as is see full civil war white vs black/brown/yellow, add in that every FED wants to kill everyone, and the MIL want their piece,

The Jap's are like 100% cohesive and idelogically cohesive, its the USA that is the fucking klusterfuck of the world, and the USA is a failed welfare state, and with +60% at the public pig trough,.. its the USA tha tis going down and hard.

Wed, 01/22/2014 - 09:35 | Link to Comment semperfi
semperfi's picture

Its doesn't matter what country it is old boy.  When things start to go to shit and everyone panics, the powers will print a shitload of money to halt the collapse.  Plain and simple.   In Japan, in the U.S., in Europe, in China, etc...

Wed, 01/22/2014 - 10:02 | Link to Comment bobert
bobert's picture

Yup.

So, keep stacking.

Wed, 01/22/2014 - 11:33 | Link to Comment Chief KnocAHoma
Chief KnocAHoma's picture

See the thing is this... we've never been here before. Not as a planet or country or people. The dragons live in uncharted waters, and we sailed off the fucking map in 2008. Our instruments aren't functional, we're low on fuel and food, and there is a shit storm on the horizon. Hold your family close.

Wed, 01/22/2014 - 09:35 | Link to Comment Poor Grogman
Poor Grogman's picture

Here we are discussing gov debt monetization like it is a natural part of the market. the questions being timing and amount.

We are so far down the rabbit hole that there is no turning back and no possibility of future prospects.

System reset at some future time is the only possible outcome.

Wed, 01/22/2014 - 09:44 | Link to Comment buzzsaw99
buzzsaw99's picture

(radioactive) banana republic

Wed, 01/22/2014 - 19:54 | Link to Comment BigJim
BigJim's picture

Radioactive sushi republic.

Wed, 01/22/2014 - 09:44 | Link to Comment Greenskeeper_Carl
Greenskeeper_Carl's picture

Look at what you have to look forward to American! (Minus the whole Fukushima thing)

Wed, 01/22/2014 - 10:04 | Link to Comment bobert
bobert's picture

Carl:

Unfortunately, I believe we have some nuclear plants resting atop geological fault lines in California.

Wed, 01/22/2014 - 11:17 | Link to Comment Yancey Ward
Yancey Ward's picture

Richard Fucking Koo tells them now?????

Wed, 01/22/2014 - 12:12 | Link to Comment Hedgetard55
Hedgetard55's picture

Koo is an "ex FED economist". Tells you all you need to know about that shit for brains fool.

Wed, 01/22/2014 - 11:33 | Link to Comment Obama_4_Dictator
Obama_4_Dictator's picture

Getting real sick and tired of waiting for this collapse already......I've basically set up everything for us to thrive in the coming collapse, but the way things are going I'm going to be insolvent before we get there.  My business is doing shitty, my Wife's hours were just cut to 32 hours a week.  And I've got all savings in PM's which is taking a major beating, eventhough I started buying at $12 and $900. Rent is going up in our area as well.  Food is expensive, gas is expensive and people don't have money to spend on my business anymore, which is "resume's".  I thought that would be a good business to get into for these trying times, and it has been for over 5 years - now people are getting to broke for even that.  The good news is that we have no debt, sold our shit condo.  It's getting hard to cut other expenses, we are at bare bones the way it is.  Fuck.

Wed, 01/22/2014 - 12:20 | Link to Comment amberwavesofsom...
amberwavesofsomething's picture

Yep, Thats the plan. Bleed everyone dry for as long as possible so hopefully when the collapse does come even the ones who tried to prepare will be fucked. Then whip out the Total State Tit and watch the mouths pucker up. No cries for freedom, too busy screaming for food and water.

Wed, 01/22/2014 - 14:02 | Link to Comment Rodders75
Rodders75's picture

It's tough. But you'll be better off than most when the SHTF.

Wed, 01/22/2014 - 12:37 | Link to Comment Vint Slugs
Vint Slugs's picture

Looks like the JGB market is at the start of a rout:

http://eideticresearch.com/uploads/2/8/3/4/2834543/jgb_major_top_dec_11_2013.pdf

Wed, 01/22/2014 - 13:55 | Link to Comment frankTHE COIN
frankTHE COIN's picture

Nice Chart. Very Toppish.

Wed, 01/22/2014 - 14:52 | Link to Comment Rodders75
Rodders75's picture

Yes. 108 on a LT view.

Wed, 01/22/2014 - 22:32 | Link to Comment Herdee
Herdee's picture

Looks like Kyle is going to do well on that one.Me,I like the bullion and coins in my paws.I think Gartman will do ok though on his Long Gold vs. Short Yen trade.

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