One look at Japan's bond yields, which moments ago hit a fresh record low for the 20Y maturity as the curve slowly but surely inverts...
.... and one would think Haruhiko Kuroda would be delighted.
After all, when he launched NIRP three weeks ago, a world in which negative rates are now a reality, it should have been clear to everyone even children, that yields would collapse as the scramble for any positive yield was unleashed.
The only problem is that Kuroda did not care about yields - positive or negative: what he wanted was to crush the currency and to send the Nikkei soaring - the only two actual "arrows" of Abenomics. Sadly for the BOJ, this time it failed as precisely the opposite of what was expected happened.
But, as the WSJ wrote earlier today in an article explaining why the BOJ is baffled (at least before a call from the BOJ forced it to change the title to the far more politically correct "Bank of Japan Faces a New Opponent on Negative Rates: Main Street")...
... Kuroda's confusion has nothing to do with the market's reaction; it has everything to do with the reaction by the public.
An appropriately very negative reaction.
Just yesterday, shortly after the BOJ's shocking announcement, Kuroda found himself dodging a concerted attack in Parliament from lawmakers who charged the policy was "victimizing consumers and sending a message of despair", the WSJ writes.
Even a ruling-party member, Masahiro Ishida, called the policy hard to grasp. “It could have the opposite effect of confusing the market,” he said.
It already has. But the problem is not that the market is confused; it is that the market's reaction to the BOJ's NIRP, which as we explained previously was largely due to central banker "peer pressure" during this year's Davos meeting, has led to a global revulsion against negative rates in general, thus validating the BOJ's error.
The criticism has come as a surprise to central-bank officials who thought their efforts to spark lending and faster economic growth would gain more public support. “Those who understand this policy are criticizing us, and those who do not are also criticizing us,” said one official this week.
Here the WSJ adds something that is patenly wrong: "It is a symptom of a global problem. The more central banks move into unconventional policies, the harder it becomes to get their message across. That is a particular problem when the policies are supposed to work in part by inspiring confidence."
Dead wrong: central bank policies are supposed to work by boosting the market; the narrative follows from there. It goes without sayinng that had Japan's NIRP somehow sent stocks soaring and the Yen crashing, the avalanche of praise would have been constant and Kuroda would be deemed a hero in parliament. Alas for the BOJ - which failed at the simple task of manipulating the market higher in the initial kneejerk reaction - that did not happen, and now Kuroda is suddenly fighting for his professional life.
And since the BOJ's market domination had finally cracked, a new narrative emerged: one which demonstrated the BOJ as being a bunch of "clueless losers", with no understand of what they are doing.
Although negative interest rates have existed for some time in Europe, the idea was unfamiliar to most Japanese when it burst onto the front pages late last month. Initial accounts focused on what could happen to bank deposit rates. That is a sensitive issue in a society where wages have barely risen since the 1990s and where one in three citizens receives pension income.
“Deposit one million yen and earn annual interest of ¥10,” said the headline of an online article Tuesday by Japan’s biggest daily newspaper, the Yomiuri Shimbun, telling savers with nearly $10,000 in the bank that they could expect less than a dime in interest
But nothing demonstrates Kuroda's bafflement quite as much as the outright hostile reception he got during his speech before parliament on Thursday:
In Parliament on Thursday, opposition lawmaker Shinkun Haku squared off with the Bank of Japan’s Gov. Kuroda on whether commercial banks would effectively introduce negative rates by hitting consumers with fees in excess of the tiny amount of interest paid. “Can you deny that banks will put an additional burden on average depositors?” Mr. Haku said. “If you can’t deny it, don’t. It’s a yes or no.”
Mr. Kuroda said he didn’t want to speculate about fees, but “there’s no chance that deposit interest rates will turn negative.”
Which is a lie - not only will deposit rates ultimately turn negative, the only questions are when and by how much.
He said negative interest rates had helped spur lending in Europe with few harmful effects. “Europe has much larger minus interest than the Bank of Japan, and I haven’t heard of minus interest rates being applied to individual depositors there,” he said.
Someone please inform the Credit Suisse or Deutsche Bank stock about the "few harmful effects", or the fact that Europe's economy is once again slowly relapsing into a recession, only this time with some 1.5 million Syrian refugees to partake in the festivities.
It didn't stop there:
"Mr. Kuroda’s responses merely inspired further attacks from the opposition, which has been looking with little success for an issue with which to dent Prime Minister Shinzo Abe’s popularity.... a Communist Party lawmaker, Akira Koike, said negative interest rates were bad public relations. “You have sent a message to the people that they had better watch out because Japan’s economy is in trouble,” Mr. Koike said.
Which in itself is a stunning of just how stupid communists, or anyone else for that matter, still are and are utterly incapable of grasping the most simple equality of the post-crisis era, namely that any central banks intervening = the economy is in trouble.
And of course Japan's economy is in trouble: it has had 6 recessions in the past 6 years as it rushes toward a demographic singularity in which there is simply no longer a Japanese population. Japan's economy is in so much trouble, the only question is when does it disintegrate into a Venezuela-style supernova.
But we can see where the confusion comes from. As the WSJ conveniently notes, central banks "policies are supposed to work in part by inspiring confidence" and instead "lawmakers charged the policy was victimizing consumers and sending a message of despair."
No: the message is one of reality, because the can kicking for Japan, having gone on for 40 years, is almost over. The good news about a central bank-free future is that it will hurt - a lot - for a while, and then normal growth can resume, but not before trillions in fake paper wealth are wiped out and quadrillions (in Yen terms) in debt is swept away.
As for Kuroda, we will fondly remember him forever as Peter Panic. There was also this pearl in the WSJ piece: "opposition lawmaker Motoyuki Odachi accused Mr. Kuroda of sounding like a World War II propaganda broadcast."
Dear Motoyuki, all central bankers sound like a World War II propaganda broadcast, one on which the time has long ago come to pull the plug.