BOJ Offers To Buy Unlimited JGBs After Yields Surge, USDJPY Tumbles

Update: as some expected, moments after the rout in JGBs this morning in Japan, the BOJ announced it would hold its first Fixed-Rate operation since February, offering to buy an unlimited amount of 10Y JGBs at 0.11%.

  • BOJ HOLDS FIXED-RATE OPERATION FOR FIRST TIME SINCE FEB;
  • BOJ OFFERS TO BUY 10-YR NOTES AT O.11% AT FIXED-RATE OPERATION

While JGBs have regained some of their losses...

... there has barely been a move in the USDJPY which is already back to where it was before the announcement.

* * *

In a delayed reaction from a Friday evening report by Japan's JIJI, since confirmed by Reuters, that the BOJ is considering a shift in policy to potentially push 10Y yield wider, and which as we reported on Friday sent JGB futures sliding, the Monday opening of JGBs has been a shock to the system, sending the 10Y yield on Japanese government bonds surging to 0.80%, the highest since February.

Meanwhile, the USDJPY which just last week hit 113, has continued to slide and is now back under 111, catching countless traders who had positioned for further Yen weakness offside - the most recent CFTC COT report showed that short yen positioning was the dominant view last week - and forcing a sharp short squeezes.

For those who missed it, according to media reports last Friday, the BOJ is set to launch a full-scale investigation to mitigate the side effects of its yield-curve control policy on bank profitability and government bond trading, which we said suggests that the BOJ may seek to "kink" the curve to the left of the 10Y in hopes of achieving a "beautiful steepening" to roughly paraphrase Ray Dalio.

Like in Europe where between NIRP and QE the yield curve has been so flat has been hurting bank profitability (with some bank, most notably Deutsche Bank complaining vocally about the ECB's policies) similar concerns have spread in Japan where both banks and pension funds have been agitating for at least some yield curve steepening to increase NIM and support bank profitability.

But even beyond the immediate threat of a rejiggering of the BOJ's Yield Curve Control, which now appears will push 10Y yield above the 0% target, another factor that is likely playing a key role is the ongoing decline in BOJ bond purchases, which both the bond and FX markets have so far been sternly ignoring.

boj mon

So will buyers step in? Absent a statement from Kuroda, the answer is probably not because as Bloomberg's Mark Cranfield writes "in theory, considering that 10-year yields are near zero, the downside is almost limitless." He also adds that Monday's jump for JGB yields suggests "investors see the Bank of Japan meeting next week as a live one, with the real possibility of an tradable decision."

Meanwhile, for all those who had been lamenting the lack of volatility in the Treasury complex, well, you are in luck: vol is back with a vengeance, at least in Japan.

As for what happens to the Yen, keep an eye on 110.76, which is the support from the USDJPY trendline: a break here, and it's back down to 106.

Comments

Lore Sun, 07/22/2018 - 21:37 Permalink

Impressive, the way they maintain a deadpan expression while proclaiming a zero-percent “target.”

When will the broad market wake up to the significance of the fact that the only buyers left are the very people who keep cranking out this garbage?

Holy shit, the ads on this page are threatening to crash my browser.

wains Lore Sun, 07/22/2018 - 22:12 Permalink

For real!  I live so far out my only internet connectivity option is satellite with Hughesnet, therefore my data usage is metered.  Shit, I have to make sure I close out ZH page on my phone and desktop every night or the pages keep running and use up my data.  Holy shit is right. 

In reply to by Lore

pigpen wains Sun, 07/22/2018 - 22:56 Permalink

Wains, simple solution for mobile or desktop: Brave browser.

Brave blocks advertising tracking and malware by DEFAULT on any device and operating system rendering digital advertising model useless.

Most people have no idea that there is a chrome based adblocking browser that blocks advertising including when you run YouTube out of the browser.

Cheers,

Pigpen

In reply to by wains

pigpen Lore Sun, 07/22/2018 - 22:58 Permalink

Lore, try brave browser as brave blocks advertising malware and tracking by DEFAULT on any device and operating system rendering digital advertising model useless.

Once you go brave you never go back to browsing without an adblocker.

You can thank me later.

Cheers,

Pigpen

In reply to by Lore

LetThemEatRand Sun, 07/22/2018 - 21:43 Permalink

It is important to be afraid that politicians these days may be leaning too socialist, as the Central Banks who are supported by the supposed capitalists buy government bonds with abandon.  The Wall Street Journal should do a story about it (or something).

Balance-Sheet Mon, 07/23/2018 - 01:12 Permalink

This is emerging policy for developed countries especially the USA- the Central Bank purchases whatever face amount of assets are required to complete the indicated/desired level of transactions. Older conservative populations do not require personal loans so the JCB creates the currency normally generated in previous decades by private bank lending.

If this is not done the Yen will fall in supply, the economy will fall into a deflationary spiral and come apart. There is no money other than the money created by lending. When YOU borrow you participate in the issuance of the currency you applied for when you signed for the loan.

Yen Cross Mon, 07/23/2018 - 01:16 Permalink

  China, Japan--who's next?

  Did I forget to mention, all that levered corporate debt?

 I can't wait for the CRE bonds to get cheap.

 Banks are so flush with cash-lmfao!  Banks are even moar levered

 The Irony, is that the Squid actually reported a balance sheet that wasn't full tilt retard. Of course the Fake Newz completely avoided it.