Japan not to be out done (global QE watch)

The Nikkei crash has spilled over to Europe this morning. A new kind of contagion...

EUR/CHF is down 1% intraday in a flight to safety
J. Kyle Bass, whose Hayman Advisors LP made $500 million amid the U.S. subprime crisis, said the Bank of Japan will have to “dramatically” increase bond-buying efforts that have been “overwhelmed” by investors selling.

Benchmark 10-year Japanese government bond yields rose to 1 percent yesterday for the first time since April 2012, more than triple the all-time low reached last month, a day after the BOJ announced unprecedented bond buying. Japanese shares also plunged the most in two years, trimming gains since November when Shinzo Abe called for expanded fiscal and monetary stimulus before elections that made him prime minister.

“Abe and the BOJ face what I call the ‘rational investor paradox,’” Dallas-based Bass, who has predicted a financial collapse in Japan since 2010, wrote in an e-mailed response to questions. “If JGB investors begin to believe that Abenomics will be successful, they will ‘rationally’ sell JGBs to buy foreign bonds or equities.”

BOJ Governor Haruhiko Kuroda said after a board meeting two days ago that excessive bond-market volatility must be avoided and he will adjust debt-buying operations as needed. His board affirmed a policy set on April 4 of expanding the monetary base to fuel 2 percent inflation in two years. JGBs rallied yesterday after the BOJ said it would supply 2 trillion yen ($19.7 billion) in one-year funds to financial markets.

Debt Service

The 10-year JGB yield closed down five basis points to 0.835 percent. The 17 1/2 basis-point gap between yesterday’s high and low rate was the widest since April 5. The BOJ’s injection was done in response to excessive volatility, according to an official who asked not to be named due to the central bank’s policy. The Topix Index of shares plunged 6.9 percent, the most since the March 2011 record earthquake and nuclear disaster.

Selling from JGB investors has “overwhelmed the BOJ’s ability to purchase them,” according to Bass. “The BOJ is going to have to dramatically expand its JGB purchasing operation if it is going to be successful in holding back rates.”

Bass said in an interview with Bloomberg Television last month that a rise in JGB yields following the BOJ’s April pledge was a sign of stress in the market. He said in January he’s buying bearish options that are “way out of the money” to bet against Japan.

Not Enough

Japanese banks, which had been using their excess deposits to buy government bonds, have reduced their holdings as the central bank increases purchases. Lenders had 164 trillion yen of the securities in February, down from a record 171 trillion yen in March last year.

“Everyone that holds JGBs will likely act rationally and sell a portion of their JGBs to buy foreign bonds or domestic equities,” Bass said. “If holders sell a mere 5 percent of their holdings (50 trillion yen), then the BOJ’s new plan isn’t large enough.”

Bass, a former salesman for Bear Stearns Cos. and Legg Mason Inc., started Hayman in 2006 to focus on corporate turnarounds, restructurings and mortgages.

Bass has been skeptical about many of the measures governments have taken to address problems in the wake of the financial crisis. In October 2010 he said Japan’s economy might unravel in the next two to three years, and that its interest payments would exceed revenue. “Japan can’t fund itself internally,” Bass said. In March 2009 he said the rise in government borrowing could produce a “potential inflationary time bomb” that would grow with fiscal stimulus.

More: http://www.bloomberg.com/news/2013-...-overwhelmed-by-investor-sales-bass-says.html
Looks like Rome Tokyo is burning...

UPDATE 1: Japanese stocks turned negative (NKY -600pts from highs, -1.5% on day; and TOPIX down over 4% from highs); Japanese banks -11% from yesterday highs; S&P futures down 10 points from after-hours highs...

UPDATE 2: *KURODA WANTS TO AVOID INCREASING VOLATILITY IN BOND MARKET (yeah thanks... as useful as saying "we all want to avoid syphilis")

UPDATE 3: Nikkei 225 Drops below 14,000 - TOPIX down 11% from highs

For the second day in a row, and in spite of comments from Abe and Kuroda on communicating with the market (as Kuroda says BoJ Monetary easing sufficient), Japanese capital markets are out of control.

JPY, after weakening 150 pips from early this morning and breaking back over 102.50 has just given 100 pips back in matter of minutes and is now trading stronger vs the USD on the Japanese session. Japanese stocks have cliff-dived with the NKY dropping 400 points in minutes and TOPIX over 1.5%. JGB futures (prices not yields) have surged back higher to trade unchanged on the day as the correlation we noted earlier - and believe is now critical - has held between an out of control bond market and any further sustainable gains in stocks.

This is not good... as if the JPY carry trade implodes (driven quite simply by a total lack of reward-to-risk given the volatility in the carry currency and loan rates themselves) then what happens to all the levered longs in European peripheral bonds and any number of the 'most-shorted' companies in the US... It seems clear that this is all an experiment to see how markets react - the answer - not well!

More: http://www.zerohedge.com/news/2013-05-24/despite-promises-japanese-market-chaos-continues
Reading the following nice long rant about economic issues around the world, I was struck by this quote:
"The Japanese government spends 24% of its annual revenues on interest expense, but only because the average interest rate is quite low. If interest rates rise to 2.2%, their interest expense will consume 80% of the government revenues."

Thinking that couldn't be accurate, I looked around a bit..

30 year Japanease governement bonds for less than 2 percent (10 year under 1%!):

Even with those low rates, the Japanese government does indeed spend almost a quarter of it's expenditures on nation debt:

What little bump in the road is going to turn Japan into a super Greece?
Despite massive money printing, Japan's market is crashing:

"Thursday saw Japan's Nikkei 225 (^N225) benchmark drop another 6.4%. The loss is the equivalent of nearly 1,000 Dow points. The Nikkei has lost more than 1/5th of its value since May 23rd. A 20% drop fits the technical definition of a Bear Market but don't be fooled. The Nikkei isn't slumping into bear territory. It's crashing."

"Japanese stocks are collapsing despite active and massive intervention by its Central Bank. The Nikkei has now given back all but a fraction of the explosive gains made in the wake of Bank of Japan Governor Haruhiko Kuroda's public commitment to do whatever it takes to jump start the world's third largest economy."

"So where does money go when all other markets fail? It goes to "risk-free" government securities. That means U.S. paper. The U.S. is the only non-emerging industrialized nation on earth with reliably positive GDP growth. The yield is almost nothing but that looks pretty good compared to the risk/reward profile of an investment in Japanese stocks."
I am slightly skeptical about the positive GDP numbers. Feels like cooked books to me.
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Well done Shinzō Abe! :clap:
Abenomics might not fix Japan but it seems to have created a 300% rise in pysical gold sales in Japan :mrt:

Tanaka Kikinzoku Kogyo K.K., Japan’s biggest gold retailer, said today its sales rose threefold in the second quarter from the previous three months, as lower prices attracted consumers.

(That's gold retailer, not jewelry retailer, they sell gold coins, bars etc. http://gold.tanaka.co.jp/english/products/index.html)

The third largest economy in the world tripling their gold buying, yet another trend that can't possibly be sustainable.


Edit: (The fall in the gold price also helped demand as well obv.)
One year later and due mainly to the fact the Japanese stock market has risen an astounding 70% year-over-year, talking-heads, politicians, and central bankers proclaim Abe's trip into the monetary policy black hole as a success (it would seem on that basis that the head of Venezuela's "central bank" deserves a Nobel prize). Abe has managed to devalue his nation's currency by 25.5% against the USD in that time and the price of Japanese government bonds (despite some early teething trouble with the government's repressive activity) is practically unchanged up 0.75% on the year. But away from the 'market', Job creation remains stifled, inflation is rising (but thanks to import prices) and wages languish down 0.9% as the trade balance is collapsing.


The Japanese masses appear to be as mesmerized by their stock market as a false idol of the economy as Americans are with the NYSE. The BoJ is stuck in the same trap as the Fed though and can't afford to stop or slow down their debasement without crashing their bubble economy. Bubbles gonna grow until they pop.
Abe hijacked the Bank of Japan with policy appointments under his influence and now the BoJ vows to stick with easy money policy even though over 100% of the recorded inflation is due to the declining yen, not higher wages as Abe wants.
The Bank of Japan will keep its highly expansionary monetary policy in place until inflation hits and stabilises at its 2 per cent target, the central bank’s governor said on Thursday, adding it would take more easing measures if price rises flagged.
Since his appointment by Mr Abe this spring, Mr Kuroda has committed the BoJ to buying some Y50tn of Japanese government bonds a year – a far more aggressive policy than his predecessors’ and enough to double the country’s monetary base by the end of next year.

Yet sceptics have noted that much of the inflation generated has been the result of a steep fall in the value of the yen, which has pushed up the cost of imports, most notably oil and gas.

Mr Kuroda, a former finance ministry official, reiterated his support for tighter fiscal policy to rein in Japan’s huge government debt, which is approaching two and a half years’ economic output. He reiterated his support for a planned doubling of the national sales tax, to 10 per cent by 2015, and said further tax rises or spending cuts would be needed to meet a goal of eliminating the deficit, minus interest payments, by 2020.

he Bank of Japan has begun shifting its focus from supporting growth to ways of phasing out its massive stimulus, taking first tentative steps towards a potentially momentous move for the world economy.

Current and former central bankers familiar with internal discussions say an informal debate is under way on how to prepare for an exit from the BOJ's 13-month-old "quantitative and qualitative monetary easing."


If the Japanese economy was poised to strengthen, the Yen should rally along with yields on Japanese bonds. Neither is happening.

Why not?

I believe the currency and bond markets have the situation correct and the economic consensus about future growth is wrong.

At some point, there has to be a reckoning, it is inevitable. When that day comes, it will be a waterfall event, it will spread to every fiat currency and wipe out any nation without something of substance to back their monetary system. It is only a matter of time. People have grown weary of the constant devaluation of their monies and perpetual inflation.
With two consecutive quarters of contracting Gross Domestic Product, Japan is officially back in recession. GDP shrank 1.6% annualized.

Unadjusted for price changes, the Japanese economy contracted an annualized 3 percent, the Cabinet Office said.
Japan is living proof of the absolute stupidity of Abenomics (a combination of Keynesian and Monetarist stupidity), yet academia, let by economist Paul Krugman concludes "Japan did not do enough".

Apparently, debt to the tune of 250% of GDP fighting deflation was not enough. 500% would not have been enough either, for obvious reasons.

But don't expect any Keynesian or Monetarist clowns to admit that. They will never stop believing in fairy tales.

More: http://globaleconomicanalysis.blogspot.com/2014/11/mystery-of-unexpected-japan-slides-into.html
A day after we highlighted the veritable collapse in U.S. shadow banking liquidity (down by nearly half since 2008) occasioned by a potent one-two punch from Fed bond purchases and regulatory measures designed to stem prop trading (but which have apparently impaired market making), we get rumblings out of Japan that the BOJ might have hit the limit on how many JGBs it can purchase without breaking the market. Specifically, Yuri Okina, vice chairman at Japan Research Institute, is concerned about the exact same issue raised by the Center for Financial Stability in their report on the “steep slide” in market finance: namely, that the absence of liquidity created by QE will create distortions and volatility.
What’s especially perturbing about this scenario, is that sapping liquidity from the market has the potential to create enormous volatility (as we saw on October 15 of last year when Treasurys staged a six standard deviation move in the space of a few hours), something the pot committed BOJ simply cannot afford lest the house of cards should come cascading down. In other words, if yields on JGBs become increasingly unwieldy because either traders lose confidence in the central bank’s ability to manage the ponzi or a lack of liquidity triggers excessive volatility (or both), it’s game over or, as BlackRock put it: “...the nightmare scenario would be a spike in JGB rates leading to a fiscal crisis.”

More: http://www.zerohedge.com/news/2015-...t-bond-buying-former-boj-official-okina-warns

Well that didn’t take long. Just yesterday we noted that Japanese policy makers were starting to get wise to the fact that rampant monetization of government bonds can (and will) foster extreme volatility by robbing the market of liquidity and inhibiting price discovery. We went on to warn that with the BOJ greedily sucking up all gross JGB issuance (and in the process driving historical volatility to near two-year highs last month), all it will take are a couple of more weak auctions (like the 10- and 5-year debt sales from February) for things to go awry and that’s just what happened overnight.

Yields on JGB 10s rose 4 bps and the 30-year yield tacked on 6 bps after demand was tepid at the monthly 10-year sale. While down from last month’s 12-year high, the tail, at 0.33, was still some three standard deviations outside of the historical norm (not good). Allow us to reiterate (although this should, by now, be self-evident to anyone with a pulse) that Japan simply cannot afford for yields to spike as the entire ponzi scheme rests solely on there being a constant bid (from somewhere) for JGBs. The next test is Thursday’s 30-year auction which, according to Bloomberg, traders are already worried about.

More: http://www.zerohedge.com/news/2015-03-03/boj-losing-control-demand-wanes-jgbs

Get ready to grab a chair, sounds like the music may stop soon.

The situation with Japan must be getting serious. First we had a former BoJ member issuing warning statements. Now we get a current BoJ member echoing the same refrain:
Today, courtesy of Takahide Kiuchi (who voted against the latest round of QE), we get perhaps the strongest rebuke of Kuroda-style easing yet, as the BOJ board member warns of “dire consequences” if the central bank continues to blatantly disregard the “side effects” of its policies.

More: http://www.zerohedge.com/news/2015-03-05/mutiny-boj-board-member-warns-dire-consequences
* bump *

The Bank of Japan will discuss scrapping its cap on government bond purchases at its next policy meeting on April 27, the Nikkei newspaper said, looking to cushion the economy against a sharp downturn caused by the coronavirus outbreak.

The BOJ will also consider a sharp increase in the amount of commercial paper and corporate bonds it purchases, the Nikkei said on Thursday, without saying where it got the information.


aw come, on its only a discussion they are having

they would never be that stupid .......... (-;
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