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China’s central bank added a record 290 billion yuan ($46 billion) to the financial system using reverse-repurchase agreements, seeking to address a cash squeeze in the run-up to a weeklong holiday.
The People’s Bank of China conducted 190 billion yuan of 28-day reverse repos and offered 100 billion yuan of 14-day contracts, according to a trader at a primary dealer required to bid at the auctions. Today’s total is the highest for a single day in Bloomberg data going back to 2004.
“Record amounts of reverse repos are to meet the surge in cash demand before the quarter-end and the holidays,” said Liu Junyu, a bond analyst in Shenzhen at China Merchants Bank Co., the nation’s sixth-biggest lender. “As the central bank steps up adding funds through reverse repos, it’s unlikely to cut the reserve ratio this month.”
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China’s monetary authority also auctioned 40 billion yuan of six-month treasury deposits to commercial banks on behalf of the Ministry of Finance at a yield of 4.32 percent, according to a different trader. That compared with yesterday’s six-month Shanghai interbank offered rate of 4.09 percent.
The PBOC lowered the amount of cash lenders must set aside as reserves in May to 20 percent, the second reduction this year.
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... In Japan today, new data shows consumer prices dropped by 0.3% compared with the previous year, while new industrial output data disappointed.
Unsurprisingly given central banks’ deflation phobia and the Japanese authorities’ determination to weaken the yen, the Bank of Japan looks set on further money printing. BoJ board member Takehiro Sato commented in an interview two days ago that "we won't hesitate in taking additional monetary easing steps if we feel that risks have heightened enough and that the economy may undershoot our forecasts even after this month's monetary easing". HSBC Securities expects the BoJ to expand asset purchases by another 5 trillion yen (US$64 billion) before the end of the year.
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... China is cornered by inflation concerns and unable to ease aggressively - has now been confirmed by none other than the Bank of China and Bank of Korea themselves. As the WSJ reports, "The rise in global liquidity could lead to rapid capital inflows into emerging markets including South Korea and China and push up global raw-material prices."
The latest round of easing by the U.S. will increase inflationary pressures for emerging-market economies, Mr. Chen said. "This contributes to a monetary-policy dilemma for Chinese authorities", he added. While markets have looked for signs of more forceful action by China's leaders to rekindle growth, some officials attribute the government's caution to fears of reigniting inflation.
This confirms previous comments by the PBoC that "A domestic policy may be optimal for the U.S. alone. However at the same time it is not necessarily optimal for the world," he said at the time. "There is a conflict between the U.S. dollar's domestic role and its international settlement role."
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... the Reserve Bank of Australia did join the monetary easing party yesterday, and announced a rate cut of 25 basis points (to 3.25%). This is the RBA’s third reduction in six months, with news today that the country has recorded its biggest trade deficit in three-and-a-half years a sign that the decline in commodities seen over the last year-and-a-half is starting to hurt the Aussie economy. The Australian dollar moved down a little following the announcement, but not that much given that the market had already priced in a rate cut.
This serves as a reminder though that as far as savers are concerned, there are no “good” currencies out there. All are being debased in the name of political expediency, and losing absolute value at an ever-greater pace.
I tried to visit the Silver Stackers forum to get an Aussie perspective on the issue, but the site appears to be down right now ("account suspended").
SS is back online. I posted a thread:
http://forums.silverstackers.com/topic-32112-reserve-bank-of-australia-rate-cut.html
Zero Hedge yesterday posted an item on Ireland, suggesting that we not forget about Ireland's debt, which IIRC (a big if) is even higher than Japan's debt / capita.
LOTS of countries are in trouble, like I have to say that here?!?!
Japan is poised to join the world's "currency wars" as it battles a triple crisis of crashing exports, recession and a suffocatingly-strong yen.
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Yen strength is Japan's curse. It rises on safe-haven flows during global downturns, choking the economy. This stems from Japan's bitter-sweet role as top creditor with $3 trillion of net assets.
Hans Redeker from Morgan Stanley says this pattern may soon change as political upheaval in Tokyo and surging public debt of 245pc of GDP usher in an era of devaluation.
The Liberal Democratic Party (LDP) -- likely to win the Diet vote expected in December -- has written into its manifesto that the Bank of Japan should switch to a inflation and currency target. Pressure is growing for quantitative easing on a much greater scale to break out of the deflationary trap.
Mr Redeker expects the yen to weaken from 79 to 84 by Christmas, reaching 90 next year. "We think Japan will no longer be able to fund government debt (JGBs) from domestic investors as soon as 2015. They will have to print money instead. They can't afford to let bond yields rise because JGBs already make up 25pc of bank balance sheets. A rise in yields would set off a crisis."
Mr Redeker said the yen has been kept strong by Japanese insurers and pension funds hedging their $1.8 trillion holdings of foreign bonds with currency swaps. They are now fully hedged. This pillar of support has been knocked away.
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Almost exactly a month ago, the BOJ surprised most analysts with an unexpected increase in its asset purchase agreement by JPY10 trillion bringing the total to JPY80 trillion. There was one small problem though: the entire impact of the additional easing fizzled in under half a day, or 9 hours to be precise. This was, as Art Cashin summarized the following day, Japan's failed QE 8. It is now a month later, and with nothing changed in the global race to debase status quo, the time has come for the BOJ to attempt QE 9. Or that's the case at least according to the toothless Japanese government, which has formally demanded that Shirakawa do a nine-peat of what has been a flawed policy response for over 30 years now, this time with another JPY 20 trillion, or double the last month's intervention. Because according to Japanese Senkei, it is now Japan's turn to pull a Chuck Schumer and demand even mor-er eternity-er QE out of monetary authority of the endlessly deflating country. In reverting to the Moore's law of failed monetarism, we expect that a QE 9 out of Japan will have the same halflife as QE 8, if indeed the program size is double the last. At which point it will again fizzle.
From Senkei via Bloomberg:
•Govt. is asking Bank of Japan to increase its asset-purchase program by 20t yen, Sankei reports, citing an unnamed government official.
•Program would be increased to 100t yen from current 80t yen: Sankei
•Increased fund likely to be used to purchase long-term JGBs, ETFs and J-Reits: Sankei
•BOJ is expected to lower economic growth, inflation forecasts in an economic report due Oct. 30: Sankei
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The weakening Japanese economy and concerns that the country is heading towards deflation led the Bank of Japan to announce further monetary easing measures yesterday. This is the second month in a row that the BoJ has unveiled new money printing measures, an unusual step. Its asset purchases are increasing by Y11 trillion ($138bn) to a total of Y91tn.
Ironically, what ZeroHedge calls “QE9” from the BoJ actually led to a 50-pip drop in the USDJPY – not exactly the result that the Japanese were after. USDJPY is currently trading around where it was at the end of last week. A Nomura source was quoted saying that Y10tn was the minimum market expectation: “the failure to reach 15 trillion yen is very disappointing for markets.” A perfect example of how equity markets are becoming addicted to central bank largesse, and how such interventions are subject to the law of diminishing returns. Such programmes need to get bigger and bigger if they are to succeed in forcing asset prices higher. The BoJ is learning this lesson the hard way.
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The Australian central bank cut its benchmark interest rate to a record-matching low level Tuesday, stepping up efforts to safeguard one of the most resilient developed economies from the risk of recession as a mining boom peaks.
The Reserve Bank of Australia, or R.B.A., cut its main cash rate 0.25 percentage point to 3 percent after its monthly policy meeting, adding to a rate reduction cycle that began in May and matching the lows hit during the darkest days of the 2008 global financial crisis.
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The Bank of Japan will consider making an open-ended commitment next week to buy government bonds and other assets until 2 percent inflation is in sight and the economy is on a more solid footing, according to sources familiar with its thinking.
The central bank will also consider scrapping interest it pays on banks' reserves, the sources added.
Faced with relentless pressure from Prime Minister Shinzo Abe to do more to pull Japan out of deflation, the BOJ is expected to double its inflation target and possibly boost its long-running asset-buying scheme at a two-day policy review that ends on Tuesday.
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The two month wait is over and the most overtelegraphed central bank news since November 2012 finally hit the tape when the BOJ announced last night what everyone knew, namely that it would proceed with open-ended asset purchases and a variety of economic targets, key of which was 2% inflation. ...
The governor of the Japanese central bank, Masaaki Shirakawa, said on Tuesday that he had offered to step down on March 19, three weeks before the end of his term, under intense government pressure on the bank to take bolder steps to resuscitate the deflationary economy.
Prime Minister Shinzo Abe is expected to replace Mr. Shirakawa, who has long preached caution on monetary policy, with a successor who is more open to printing money, stoking inflation and bringing an end to the falling prices that have weighed on Japan.
During his five-year term, Mr. Shirakawa resisted calls from successive governments to be more aggressive, warning that loose money would only lead to unchecked government spending and runaway inflation. Mr. Shirakawa also argued that the government, not the Bank of Japan, needed to do more to encourage economic growth through structural reforms and other growth policies.
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Japanese Prime Minister Shinzo Abe says he believes the country's central bank will achieve its target of 2-percent inflation through aggressive monetary easing.
Abe spoke before the lower house budget committee on Tuesday.
He said Bank of Japan policymakers have expressed their determination to meet the target in about 2 years. He said that declaration by the BOJ has already been effective in weakening the yen and boosting stock prices.
Abe said the BOJ's commitment will raise inflation expectations and result in a 2 percent rise in prices.
BOJ Governor Haruhiko Kuroda told the budget committee the central bank will use all the policy tools at its disposal. He said the bank will implement bold monetary easing measures to achieve the price target as soon as possible.
But he admitted that it won't be easy to end 15 years of deflation.
Kuroda chairs his first BOJ policy board meeting as governor starting on Wednesday.
... In his effort to do "whatever it takes", the BoJ is upping asset purchases, extending the maturity of purchases and merging its asset purchase program; increasing the size to JPY7tn and buy securities out to 40 years. Though no mention of foreign bond-buying was made, and increase in ETFs and REITs is included. They have given themselves a two-year window to achieve the 2% inflation goal ...
The Bank of Japan unleashed the world's most intense burst of monetary stimulus on Thursday, promising to inject about $1.4 trillion into the economy in less than two years, a radical gamble that sent the yen reeling and bond yields to record lows.
New Governor Haruhiko Kuroda committed the BOJ to open-ended asset buying and said the monetary base would nearly double to 270 trillion yen ($2.9 trillion) by the end of 2014 in a shock therapy to end two decades of stagnation.
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Yra Harris said:...
***BACK To the front on the Japanese declaration of war on the European Central Bank. The G-7 has maintained that domestic policy objectives of quantitative easing are a net positive for the world, the only problem is if a central bank ramps up it quantitative easing by PURCHASING BONDS AND ASSETS OF OTHER COUNTRIES. THIS WOULD BE A POLICY THAT WOULD CROSS THE LINES OF ACCEPTABLE. This is also the stance taken by Chairman Bernanke in his speech that I have previously cited, given in London on March 25, 2013. Bernanke said: “Again, the distinction between monetary policies aimed at domestic objectives and trade-diverting exchange rate devaluations or other protectionist measures is critical.” It seems that the new Japanese policy obscures those distinctions. How?
This is the critical point that must be understood for the impact of the BOJ‘s recent decision. THE RAMPING UP OF THE BOJ BOND BUYING, ITS EFFORTS TO RAPIDLY INCREASE MONEY SUPPLY, AND THE DESIRE TO CREATE 2% INFLATION MEANS THAT JAPANESE INVESTORS AND LARGE INSTITUTIONS WOULD BE CRAZY NOT TO UNLOAD THEIR MASSIVE HOLDINGS OF LONG-TERM BONDS TO THE MOST READY BUYER … THE BOJ. By unloading bonds to the BOJ the Japanese investor will be forced to either by the Nikkei or search for higher yielding bonds in foreign destinations. Yes, the BOJ will not directly be purchasing foreign assets in contravention of the G-7 agreement but its policy of FINANCIAL REPRESSION of Japanese citizens will force insurance companies and private citizens to undertake such purchases.
The action in the European debt markets on Thursday and Friday was certainly evidence of the impact of BOJ policy. The yields on 10-year notes all across Europe is indicative of the search for yield. French bond rates have fallen 25 BASIS POINTS since the Japanese announcement, as have the bonds of Belgium, Austria,Italy and Ireland. It will be difficult to comfortably short the debt of any highly rated sovereign now that the Japanese private investor is on the search for higher yielding instruments to replace long-held JGBs. The average Japanese investor could comfortably own domestic bonds at very low yields as long as prices remained steady or were in a deflationary mode. The BOJ just ended the security of that investment strategy. In a globalized world of FREE CAPITAL FLOWS IT IS DIFFICULT TO HALT POLICY OUTCOMES AT THE BORDER.
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The Bank of Japan (8301)’s “huge bet” by boosting quantitative easing won’t turn the economy around and is instead sending the nation toward default, said Takeshi Fujimaki, former adviser to billionaire investor George Soros.
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“By expanding the monetary base to 270 trillion yen, the BOJ is making a huge bet which I think it will ultimately lose,” Fujimaki said in an interview in Tokyo on April 11. “Kuroda’s QE announcement is declaring double suicide with the government. The BOJ will have to share the country’s fate and default together.”
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“Japan’s finance is sinking into the ocean,” Fujimaki said. “There’s no escape from a market crash in the future when you have such enormous debt.”
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The Reserve Bank of Australia cut its benchmark interest rate to a record low, driving down a currency that has damaged manufacturing and boosted unemployment.
Governor Glenn Stevens reduced the overnight cash-rate target by a quarter percentage point to 2.75 percent, saying in a statement that the Aussie’s record strength “is unusual given the decline in export prices and interest rates.” Eight of 29 economists predicted the seventh cut in the past 19 months, while money markets had seen about a 50-50 chance.
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... please consider this chart of 10-Year Japanese bonds.
Chart courtesy of Steen Jakobsen, chief economist at Saxo Bank in Denmark.
I have been paying close attention to Japanese yields in light of this statement by the Bank of Japan chief: "I do not expect a sudden spike in long-term bond yields."
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When Japanese inflation spikes higher (and it will), the only way the Bank of Japan will be able to suppress long-term rates is to buy every long-term bond on the market.
A currency crisis in Japan is now just around the corner.
Japanese Bond Market Halted At Open As Bond Selling Purge Goes Global
10Y yields smash 11.5bps higher to 1.00% and 5Y yields add 6bps to 47bps. These are quite simply unprecedented moves
TOKYO (NQN)--The Nikkei Stock Average plummeted 1,143 points Thursday, logging its 11th biggest decline ever. The trading range was an impressive 1,458 points, a 13-year high and bigger than the 1,214-point swing immediately after the Great East Japan Earthquake.
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