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Saxobank CIO Warns USDJPY Could Hit 135 On "One Trick Pony" BoJ Desperation
Via Saxobank CIO and Chief Economist Steen Jakobsen,
The Bank of Japan has increased the targeted monetary base from JPY 60-70 trillion to JPY 80 trillion an increase of 25-35% and an almost desperate move to keep the Abenomics' wheels going.
The decision is quite controversial as the vote was a narrow 5/4. This is extremely unusual as big decisions like these are generally only done with full consensus, but it clearly shows Abenomics is running out of time and room as core-inflation, excluding tax, was at 1.1% vs. the 2.0% target.
The International Monetary Fund has been critical of Abenomics recently telling Japan that is falling short of helping the economy.
From a market perspective the move today was almost perfectly timed coming on the heels of a Federal Open Market Committee meeting which ended quantitative easing and expose the big difference on future monetary paths between the BoJ and the Fed.
Dark side
There is, however, a dark side to this big move.
Prime Minister Shinzo Abe needs and needs to decide soon on whether to increase sales tax, VAT, again or disappoint on his third arrow.
Abenomics has not deserved its name as a new approach. it has been all about printing money and making the state take a bigger and bigger role. It is hardly a new policy but more a reflection on an inability to change a conservative society with poor demographics.
Tactical and trading wise, the USDJPY has reached a new high and it’s hard to fade a central so desperate is very likely as US dollar strength the name of the game through Mid-November.
Through today, TOPIX has moved into a small positive for the year +2.00% (in JPY) vs. +8.3% for S&P and minus 4.5% for DAX.
The easier monetary policy will force USDJPY and NIKKEI higher as it’s a one-way street, but it will more importantly force Japanese banks to lend out and overseas.
I see/hear desperate Japanese bankers trolling the world to find things to finance and it seems they are in desperate need of US dollar funding (I.e: they have not hedged proportionally).
This could make USDJPY test 125/135 over coming months but the “risk” remains China, which even prior to this action was upset at the ‘beggar thy neighbour' policy of Japan.
The BoJ's QE move is a desperate measure that will hurt the
yen and the spending power of the population. Photo: Thinkstock
yen and the spending power of the population. Photo: Thinkstock
One-trick pony
Overall, tactically, it confirms the world is again moving towards lower yields in G10. A new low remains my only and main call and furthermore as big a move as this is, it also tells a story of how central banks, even the desperate ones like BoJ, are and remain one-trick-pony institutions.
Personally I see this as the final round – Japan was ALWAYS going to give it one more shot – now it happened.
The European Central Bank will have its last shot next year, and the Fed will stop short hiking rates before at least December 2015 (from consensus June 2015 now).
Yes, the world has gone full circle. We started the year in full recovery the worst is over, now we see that things have reversed into pretend-and-extend version 6.0.
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The Frankenstein of global CB's
Buy stawks you muppets or "We will"..........ya can't lose, unless someone turns off the music and you know what happens then
S&P has cleared the runway to 2 million now! Not to worry, all the peasants will be gainfully employed as professional stock ticker watchers.
For every action there is an equal and opposite reaction.
Vat sucks the consumer out of consuming.
A lower Yen will not increase exports when the rest of the world is still muddling about with squallooch demand.
The Vat that broke Mommasan's back
Currency war being called monetization or QE.
JPY at 130 puts the S&P at roughly 2350. Holy fucking bubble.
Something will break first.
The USD and bond market had a near death moment back on the 15th on no news.
Entropy is a bitch.
There's never been a better time to be rich and have substantial assets. I'm really glad I listened to J-Yell when she recommended I get some.
Don't forget the cake!!!!
I chose my parents poorly.
Phucked ist.
Hey Genius. Where does Y130 put US profits abroad?
Genius checking in. The Japanese will have less money to buy American goods.
This is basic math. Back when 1USD=100Y, an iPhone cost 600USD (60,000Y). Today, 1USD=110Y. Therefore, an iPhone today costs 66,000Y.
So yes, Apple collects 10% more Yen. Approximately zero percent of that comes back to the US. Profits abroad mean precisely dick until repatriated.
This does not even take into account the fact that Japanese wages have not risen by 10% to compensate for this BOJ fuckery.
The sell-side has gone batshit parabolic crazy! This just goes to show how desperate and short the banksters are ¥.
The institutional importers should have a field day with this.
Large macro importers hedge yen in order to maintain profit margins on their sales. I'll be buying yen over the next couple of weeks.
I've no doubt that the currency(¥) is going to blow out, but who does it take with it? I fully expect a massive short squeeze as unlevered "MACRO" funds take advantage of levered positions. The usd/jpy hasn't been at these levels since 2008.
Why stop there... USDJPY to 1000! Think big or go home!
That is not thinking big enough.
They need to out do Zimbabwe.
That would be impressive.
Turn them on, turn them on
Turn on those sad songs
When all hope is gone
Why don't you tune in and turn them on
"but the “risk” remains China, which even prior to this action was upset at the ‘beggar thy neighbour' policy of Japan."
Got Popcorn?
Time for the Dow 36K hats.
With all the money printing why is gold getting killed?
people must buy papper assets
Because gold is real money. Uncle dollar must use all his tools to destroy its credibility. We can't have the sheep fleeing to pm's.
Are you complaining for being offered a great discount ?
Not complaining at all. At the end of the day, lifting asset prices does not create sustainable demand (without being able to borrow against it and esp because most people actually need to sAve more than they need to spend). Was just curious to see responses.
It my view, economy here is already starting to slow so in about 6-10 months there will be qe4.
6-10 months, if they can hold out that long. I've had the opinion, for months, that they'll turn on the hose (or announce it) again around March. By that time, all US markets should've fallen heavily. Also, they'll have another winter to blame for terrible sales in Q1.
It won't be the same as the others. They own too much US debt, already. They'll do something different. Corp. bonds, maybe. Call it Cash for Corporate Clunkers.
What a nice clean looking city in that pic, unlike the decrept shit holes in the US.
Cesium-137 is invisible.
Lived in Tokyo for 5 years and have walked across that intersection at the Shibuya station many times. That's where the famous dog, Hachiko, resides, in bronze, of course.
If you look hard enough you can see lots of trash there.
I think the earlier article Tyler posted was fantastic! The person(s) that put together that piece should be commended.
"The Most Important Chart For Investors" Flashback, And Why USDJPY 120 Is Now Coming Fast | Zero Hedge
so lets see that puts the nikkei 225 at 1 tillion.
http://finviz.com/futures_charts.ashx?t=NKD&p=d1
per IMF
Japan went from $175 billion (US) trade surplus in 2006 ... to trade DEFICIT in 2013
see table 4.1 (and text underneath table)
http://www.imf.org/external/pubs/ft/weo/2014/02/pdf/c4.pdf
Superb link. Much appreciated.
Astonishing really.
and oz of gold will be $20
Mine all say $50USD on them.
and per table 4.1 china's trade surplus already has slid from $232 billion (US) in 2006 to $183 billion (US) in 2013
There's ALWAYS room to give it 'one more shot'....why stop at 135 lets ramp it to 185! Or an even 200 after a few more attempts...what's to stop them?
" We started the year in full recovery the worst is over, now we see that things have reversed into pretend-and-extend version 6.0."
Then HOW can he be expecting the Fed to "hike" its manipulated "interest rates"????
According to Natixis FICC Research:
http://personal.crocodoc.com/SU8Hy8u
In reality, central banks control only the prices of the assets they buy directly
When a central bank buys an asset directly (often government bonds), it drives up the price of this asset, the demand for which increases.
But the prices of the other asset classes increase only if the economic agents that have sold the first assets to the central bank use the money received to buy these other asset classes.
This transmission of increases in asset prices to all asset classes is therefore unstable, since it depends on the behaviour of investors and savers. Since 2012, we have seen that central banks’ purchases first led asset sellers to buy risky assets (equities, corporate bonds), whose prices rose. But in the recent period, the rise in risk aversion has turned them away from risky assets, whose prices have fallen, and they have invested the money received from the central bank in risk-free assets.
There is therefore no stable monetary policy "risk channel"; the only asset prices that are controlled by central banks in the longer run are those of the assets that central banks buy directly. This could in the future push central banks to buy riskier assets if they want to change their prices in a stable manner.
Central banks’ asset purchases have a direct impact on the prices of these assets
When a central bank buys financial assets, it increases demand for these assets, which directly drives up their prices.
This occurred with purchases of Treasuries and ABS in the United States (Charts 1A and B) and with government bonds in the United Kingdom and Japan (Charts 2A and B), and with the announcement of covered bond purchases in the euro zone (Chart 3).
But the impact of the central bank’s asset purchases on other asset classes is uncertain
- The central bank buys assets (especially government bonds, Charts 1A, 2A and B above).
- It pays by creating money (Chart 4).
- The economic agents that sell assets to the central bank use this money to buy other assets. But they have a free choice: a quantitative easing policy will drive up the prices of the assets that economic agents choose to buy, not the prices of the others.
- We also saw from 2011-2012 until the spring of 2014:
• A tightening of credit spreads (Charts 5A and B, 6A and B);
• A rise in the stock market (Charts 7A and B, 8A and B).
- But investors’ risk aversion has risen since the spring of 2014, (Charts 9A and B): they no longer buy risky assets and the prices of these assets have corrected downwards, whereas long-term interest rates on risk-free government bonds have fallen sharply (Chart 3 above, Charts 10A and B).
Conclusion: The risk channel is not robust
The transmission of the rise in the prices of the assets the central bank buys directly to a rise in the prices of other assets is therefore unstable, since it depends on investors’ attitude and their risk aversion.
The "risk channel" is the mechanism through which the central bank’s monetary creation drives down risk premia.
We have seen that this mechanism is unstable: it functions only if economic agents use the money created by the central bank, in exchange for purchases of risk-free assets, to buy risky assets.
If their risk aversion rises, this mechanism disappears - and so does the risk channel. In that case, the only remaining possibility for the central bank is to buy risky assets directly if it wants to drive down their prices.
Hi Polo :
<< ... the only remaining possibility for the central bank is to buy risky assets directly if it wants to drive down their prices. >>
I think you mean "boost their prices". The "Drive Down" part happens as prices get trampled underfoot during the upcoming rush of the Herd - as they all attempt to storm through the narrow exit out of Insanity Theater...
Maybe by the 12th version in 2020 I'll have to get a job. I'll have my PhD by then. I plan on selling my thoughts on Q99X2.
There is only ONE CENTRAL BANK.
Comment was duplicated ny mistake
With all the money printing why is gold getting killed?
They're using part of the QE to slam gold.
Just be patient; and add to your holdings with caution.
Another reason is that hardly anyone is aware of several major factors that will influence gold's price:
it is actual collateral for all issued paper currencies (foreign and domestic), and much more. The words, “gold and gold receivables” are listed first on the asset statement of all central banks. It is, for example, 1) collateral for “cash equivalents” that show up on corporate asset statements (as formerly, only “cash” was listed), 2) Mortgage Backed Securities (owned by the FR), 3) US Treasuries (owned by foreign institutions, private and public). All these and more are ultimately collateralized by a piece of paper held by the Federal Reserve and which goes by the name, “gold certificate”; which, in turn, is collateralized by the words, “gold and gold receivables” listed on the asset statement of the US Treasury. The words, “gold receivables” tell you that some, or all, of Fort Knox gold is not where most people think it is.
So, what is a realistic (and eventual) $ price for gold… $7,000… $15,000…? (Please don’t expect these prices tomorrow: there is a lot of learning the market must do before we see them.)
You may think this will be a wild ride. If you think collateralization, currency equivalents, double-entry bookkeeping and mortgage-backed securities are dull subjects – if you think wishful thinking is a harmless activity – if you think taxes are essential for the development and maintenance – rather than the destruction – of civilization, then, yes, this will be a very wild ride. We are about to study concepts and actions, crimes and fictions that few, if any, others have examined yet relative to their influence on gold.
Instead of using gold as collateral, the dollar, today, is collateralized by US Treasury securities, which carry value only as taxes can be collected against future generations of Americans: a kind of cannibalism. This is a hideous case of wishful thinking. Thus, today, wishful thinking has replaced gold as backing for most of the world's currencies.
It may also be a disturbing study; for, the dollar is the world's reserve currency. It is used as gold once was used: to serve as backing, or collateral, for issued currencies around the globe; in the dollar's case, it serves as collateral for many of the world's major currencies: the Euro, yuan, yen, and a few dozen others are, thus, built on top of the house of cards known as the dollar.
We should ponder the question, 'What happens when men build a global society on houses of cards?'
We should also consider the question, ‘Should we rely on ourselves to provide an alternative… or should we rely on those (Congress) who mandated this house of cards to be imposed on Americans… and the world?’ (Complete article)
Another consideration: as with all houses of cards, the dollar cannot survive: it is inevitable that it should fail, which will take the whole world with it. What happens when this financial slaughter occurs? Historically, guards will be in every bank at the entrance to safety deposit boxes. When a customer comes to visit his box, the guard will look over his shoulder (or push him out of the way); if there are any cash, stocks, jewelry, or precious metals, the guard will take them and he might leave a receipt for them. It will be an exchange of hard assets for a piece of bad paper.
And who will these guards be… native dope heads… or recruited from the ALLIANCE cobbled together by the Red Chinese. You see, when the Chinese took possession of the Panama Canal, they immediately established an ALLIANCE among Mexican and Columbian drug cartels, Chinese Triads, Chinese Communist Party, the Red Army and several US government entities (Congress, Department of Justice, DEA, FBI et cetera). Simultaneously, they smuggled 150 top-level crime bosses into the US thru the Canal. I learned about this from testimony before a congressional subcommittee.
So, why the extraordinary cooperation between the US government and Chinese communists? Is it related to the establishment of the US Department of Homeland Security? The DHS is modeled after French Committees of Terror (1792-4), the Judeo-Bolshevik Cheka (and its successors), and the Nazi Schutzstaffel (SS); all of which were designed to protect criminal and useful-idiot classes from their victims; that is, to suppress those who ask too many questions, or show a trace of intelligence, sense of justice, or independence.
Who better to staff the domestic organ of terror (DHS) than cutthroats recruited from this ALLIANCE? At the proper time, of course.
Thanks for sharing Anthony, I enjoy your work tremendously.
Ah, you are well-cultured... a gentleman and a scholar... something like that?
I never thot I was good at gratitude.
I hope those reactors last or they're going to get the inflation or should I say hyperinflation in all the wrong places!!
If they're handling their reactors half as well as their economy we are all fucked.
I would love a 30% discount on everything Japanese. Please hit 135 on the dollar.
What ever it is it will be the most documented financial shit storm in human history
if you're not weeping you can only laff
Q: What’s a Japanese girl’s favorite holiday? A: "Erection" day.It seems that the fat lady is about to sing for Japan.
pretend-and-extend version 6.0
We're way beyond that. Something like delay-and-pray 14.0
6. USDJPY heads to 60.00
http://ch.saxobank.com/why-saxo/media-centre/press-release
Lol.
For months the major world currencies have traded in a narrow range as if held in limbo by some great force. This has allowed people to think we were on sound footing as central banks across the world continued to print and pump out money chasing the "ever elusive growth" that always appears to be just around the corner. Recently some currencies have made multi-year highs or lows depending on the match-up.
John Maynard Keynes said By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. While there are not many Bond Vigilantes there are a slew of Currency Vigilantes and they are ready to make their presence known. Weakness in the value of the Yen, Pound, and Euro must not go unnoticed. More on why this may be a signal that currency trading is about to get very wild in the article below. Please note, this may also be sending a signal that the whole system is unstable and the stock market is about to drop like a stone.
http://brucewilds.blogspot.com/2014/10/fed-concerned-that-stong-dollar.h...