Why One Trader Believes The BOJ Made A "Massive Misstep"

Tyler Durden's picture

US stocks may have already forgotten about the dramatic collapse in Japanese equities and the surge in the Yen which wiped out months of profits from macro funds (and certainly the latest GDP miss) with the S&P wiping out some 15 points in losses in 36 minutes, but for Japan the hangover from Kuroda's lack of action last night remains, because according to Mark Cudmore, former FX trader who currently writes for Bloomberg, the BOJ made a massive misstep. Here's why.

The BOJ's Massive Misstep


It’s hard to avoid the conclusion, confirmed by the price action, that the Bank of Japan messed up today. The magnitude of the surprise means there’ll be follow-through in asset reaction, including yen strength, but ultimately this makes the long-term prognosis for the currency even more negative.


Even if keeping policy unchanged might once have been the correct decision, it’s not now. The failure to deliver, especially after Governor Kuroda’s comments about currency appreciation had driven hopes for further easing so high, is terrible news for the Japanese economy. Not to mention a further blow to the BOJ’s credibility.


The immediate surge in the yen and the panicked sell-off in equities were the most obvious examples of trader disappointment. And the currency’s rally will put further downward pressure on both growth and inflation.


It’s important to distinguish between the short-term surprise, which is bullish yen, and the longer-term consequences of the “mistake.”


Short-term, the lack of easing is currency supportive. However, the bigger picture is that the BOJ is extending the Japanese economic slump. And, eventually, that will either directly feed through to currency weakness or compel the central bank to deliver a much bigger policy surprise.


Japan’s government debt pile is roughly 250% of GDP. About 41% of tax revenue goes to debt servicing. The country needs inflation desperately. The BOJ today said it’s going to take longer to arrive. That means consensus 2016 growth and inflation forecasts, of 0.5% and 0.3% respectively, are likely to be revised down further.


Don’t fight the yen rally today. The 18-month low in USD/JPY, of 107.63, may now be vulnerable, especially in the context of last night’s dovish Fed statement. But don’t confuse momentum with fundamental strength.

Then again, all the algos need to hear to fight the yen rally is to be told not to fight it and sure enough that's precisely what they have been doing since the open today, and as of moments ago we are already nearly 100 pips off the lows because of "hope."

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Racer's picture

It is not bad news for the economy only for "markets". If central banksters stop meddling then then economy will recover finally

samjam7's picture

The BOJ has dug itself such a deep hole already that no matter what it does it is getting increasingly difficult to please markets. When they introduced NIRP Gov. Bond auctions had to be cancelled and the Yen soared. Now they did nothing, and the Yen soared again and stocks crashed.

We're seeing the endgame unfold here and the "massive misstep" this trader mentions was committed a long time ago!

scubapro's picture



CB actions are suffering from the law of diminishing returns.   Cb actions have inflated each 'recovery since the tech/911 bust....each followed by a crash of some sort.

crash this time will be, I think first in equities then bonds....real esate in there too but not as bad as 2009.  oil may recollapse too as a real recession takes hold and demand dives.

pmbug's picture

It's looking more and more like Rickards' "Shanghai Accord" thesis is correct:




Cognitive Dissonance's picture

"....is terrible news for the Japanese economy. Not to mention a further blow to the BOJ’s credibility."

So let me see if I have this correct. The BOJ had no credibility because they were printing like crazy for years (decades?). Now they have no credibility because they won't print like crazy....even MORE?

At what point do we starting discussing exactly whose credibility we're talking about?

t0mmyBerg's picture

Exactly.  Rarely have I seen such rubbish written as that penned by this "trader"

Antifaschistische's picture

exactly, and since when has what is good for a "trader" equaled what is good for a country.   I'm not saying the BOJ is working in the best interest of Japan either, but we all know how "traders" think and their value time horizon is about 5 minutes.(that's the long term strategy guys).


KnuckleDragger-X's picture

CD, credibility is for the little people who don't have a magic money button. Somebody has to start the hyper-inflation ball rolling.......

Theonewhoknows's picture
Theonewhoknows (not verified) Racer Apr 28, 2016 9:42 AM

Politics, economics and media - they all in the gutter. We have to ask ourselves a question what we can do about it HERE AND NOW. We all know that the ship is going down but the music keeps playing but what we should be thinking about is how not to be swept by the wave of bad consequences developed world indebtedness, bubbles in many corners of market and war on cash. Playing a bear against central banks may be very hard, on the other hand, prolonging this bingeing on QE-driven bubbles equals meeting a wall sooner or later. Especially that smart money is already evacuating http://independenttrader.org/is-time-to-short-already-here.html

tc06rtw's picture

 …  Assuming you have “little” to “zero”  skin in the game,  it’s actually quite fascinating to watch the billions of worker ants swarming around, panic-stricken.

“We all know that the ship is going down”  and it  cannot  be saved,  but they’re all working their little feelers to the bone to keep it on a dead-even keel while the waters slowly, slowly envelop the entire craft.

i_call_you_my_base's picture

"compel the central bank to deliver a much bigger policy surprise."

WTF is left?

undercover brother's picture

Some trader who likely got monkey hammered in his USD/JPY trade is telling us the BOJ misstepped. That's funny.

allamerican's picture

razzle dazzle fancy trader lose a little money over BOJ CB shit show. .  no change is no change.  what the clown fucker expect.  you re stoned, go oime..

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) undercover brother Apr 28, 2016 9:56 AM

How many Traders are there in this country?  Why are we supposed to care what this one guy said?  What is his trading track record, does anyone know?

JamaicaJim's picture

He "works" at Bloomturds now brah....

His record must'n be too shiny....

Restorative_Ally's picture

Japanese economy is about as likely to inflate on its own as is Kuroda's old cock.


scubapro's picture



yes massive mis step, and by far the most important  piece of news....yet cnbc doesnt seem to feel it needs to be covered instead focusing all its time on about 5 individual names who are buying each other.

besides, now having no credibility in its understanding of how the economy works, markets now also do not know what boj might do at any given time, neutering the banks ability to guide investor actions.


more importantly there are two big concepts beginning to emerge:  law of dimishing returnss and marginal buyer.   the CBs are having less and less impact with each round or continuation of qe/zirp/nirp/bond buying---even getting the opposite of what they wanted.

boj, ceasing to EXPAND its intervention means the removal of additional or marginal buyers.   more buyers than sellers make prices go up...when they are equal prices stop, which in the financial world is negative (not unlike how govt talk about 'cutting' spending).  corporations whose earnings are declining, are the last marginal buyer in the US; no more QE in US means no new cash into the system to buy stocks.   ITs been all BOJ and now a cessation of expansion---negative for financial asset prices.  BOE would have to take up the slack and increase to 120B month to keep global stimulus expanding.

earnings declining, no growth in gdp, and a decline in marginal buying liquidity----- fuse is lit, perhaps as earnings season ebbs and less 1penny 'beats' on declinging eps and revenues might get it started

Dr. Engali's picture

The misstep was getting involved in the markets in the first place. 

Giom's picture

this trader has been stop out and complain about the BOJ action. The long term issue is due to years of mistake not today which may not be a mistake to stop all this crap finally and come back to a normal market situation known 10 years ago.

Giom's picture

this trader has been stop out and complains about the BOJ action. The long term issue is due to years of mistakes not today which may not be a mistake to stop all this crap finally and come back to a normal market situation known 10 years ago.

anarchitect's picture

What a load of shite.  No wonder the writer is a former FX trader.

Storm Chaser's picture

As far as financial markets (long decoupled from physical economy, probably not to be recoupled for a lonnnnnng time), it's all about money flow, ONLY.

So let's see, we will have N225 and USDJPY continue to go down.  Does this mean Mrs Watanabe will be pulling money out of UST and SPX?

vegas's picture

Seriously, the BOJ has credibility? That's like saying Obama speaks to truth.



JamaicaJim's picture

I'm a trader too, there Bosco De Gama.....


Gee Mark Cudmore....gotcha chewin...yer cud son....

Those sneaky Japs....!

You waaaaaaaaaaaaaaaaaaaaay out at Pearl are ya?


asinine rant by a "former" trader....key word...former