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  • Bank of Japan to Pump $1.4 Trillion Into Economy

    http://www.reuters.com/article/2013/...93216U20130404

    (Reuters) - 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.
    The U.S. Federal Reserve may buy more debt under its quantitative easing, but with the Japanese economy about one-third of the size of the United States, the scope of Kuroda's "Quantitative and Qualitative Monetary Easing" is unmatched.
    "This is an unprecedented degree of monetary easing," a smiling Kuroda told a news conference after his first policy meeting at the helm of the central bank.
    "We took all available steps we can think of. I'm confident that all necessary measures to achieve 2 percent inflation in two years were taken today," he said.


    One of those steps was to abandon interest rates as a target and become the only major central bank to primarily target the monetary base -- the amount of cash it pumps out to the economy. It adopted a similar policy in 2001-2006, but not on this scale.
    The scope of the changes Kuroda pushed through, and the fact he secured unanimous board support for them, drove the yen down sharply, knocked the 10-year bond yield to a record low, and nudged Tokyo share prices just shy of a 4-1/2 year closing high.

    "The result is nothing short of regime change," HSBC's Japan economist Izumi Devalier said in a report.
    "The BOJ has now made a much firmer commitment to achieving its 2 percent inflation goal, and has demonstrated that it will do anything short of foreign-bond buying to achieve this goal."
    The scope of Kuroda's overhaul offered immediate comfort to Japanese markets, but contains major risks.

    It could leave the central bank heavily exposed to government debt and potentially huge losses if it failed to stoke inflation and investors lost faith in its efforts to revive the economy, and it could trigger a currency war as other Asian exporters seek to remain competitive with a weaker yen.

    "It is as if we've gone back to the quantitative easing of the 2000s," said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management in Tokyo.
    "Targeting the monetary base will lead to a huge increase in current account balances that commercial banks keep at the BOJ, but I'm still not sure if this money will move through the economy."
    Monetary base, or cash and reserves at the BOJ, already hit a record in March, but the huge pile of money has failed to end deflation or boost wages.
    PERFECT ANSWER

    Kuroda's first policy meeting since taking office on March 20 was seen as a big test of his ability to steer the BOJ towards unorthodox measures to meet the inflation target it adopted in January, and markets liked what they saw.
    Government bond futures soared and the benchmark 10-year bond yield hit 0.425 percent, its lowest ever. The yen, which had been creeping up in the run-up to the meeting, plunged, driving the dollar up by more than 2 percent to around 95.25 yen from around 92.90 before the decision.

    The Nikkei stock index unwound losses of more than 2 percent to end up 2.2 percent, just shy of a 4-1/2 year closing high hit last month.
    The BOJ will buy 7.5 trillion yen of long-term government bonds per month, roughly 70 percent of bonds sold in markets. It combined two bond-buying schemes, its asset-buying and lending program and the "rinban" market operation, to buy longer-dated government bonds, including those with duration of 40 years.

    The central bank will also increase purchases of exchange-traded funds (ETF) by 1 trillion yen per year and real-estate trust funds (REIT) by 30 billion yen per year.
    "I can say that the BOJ came up with a perfect answer in response to market expectations," said Junko Nishioka, chief Japan economist at RBS Securities.
    "Kuroda made good on his promise of boosting monetary easing in terms of both volume and types of assets that the bank purchases."
    Kuroda said the BOJ wanted to push down bond yields enough so that investors will start buying riskier assets, such as property and stocks, and to prompt households and companies to spend now rather than later on expectations of rising prices.
    The central bank temporarily scrapped a self-imposed rule of capping its holdings of government bonds to the value of bank notes in circulation, despite reservations by some board members that doing so could nudge it closer to monetizing public debt -- or directly underwriting government borrowing.

    Kuroda brushed aside concerns that excess money printing by the BOJ will sow the seeds of a future asset price bubble, which was repeatedly mentioned by his predecessor.
    "I don't see a risk of a sudden spike in long-term interest rates or a creation of an asset price bubble," Kuroda said.

  • #2
    Re: Bank of Japan to Pump $1.4 Trillion Into Economy

    The Japan bond crisis scenario just took a big uptick.

    I am watching with horrified fascination the currency account balance numbers: with the ongoing nuclear shutdown, Japan now has a huge currency outflow for energy purchasing purposes.

    Simultaneously the competitiveness of many Japanese products is no longer one based solely on price - and many of the ones which are, are dependent on imported commodities.

    Here's some historical data for context:

    http://www.indexmundi.com/g/g.aspx?c=ja&v=145

    Japan 170,200,000,000 165,600,000,000 174,400,000,000 210,500,000,000 156,600,000,000 142,200,000,000 166,500,000,000 120,500,000,000
    2012 is estimated to be $84.7 billion...

    Comment


    • #3
      Re: Bank of Japan to Pump $1.4 Trillion Into Economy

      Originally posted by c1ue View Post
      The Japan bond crisis scenario just took a big uptick.

      I am watching with horrified fascination the currency account balance numbers: with the ongoing nuclear shutdown, Japan now has a huge currency outflow for energy purchasing purposes.

      Simultaneously the competitiveness of many Japanese products is no longer one based solely on price - and many of the ones which are, are dependent on imported commodities.

      Here's some historical data for context:

      http://www.indexmundi.com/g/g.aspx?c=ja&v=145



      2012 is estimated to be $84.7 billion...
      If anything in Japan occurs it is still going to take a long time to play out.

      Egypt on the other hand, well that is more immediate.

      http://www.indexmundi.com/g/g.aspx?v=145&c=eg&l=en

      They have less than 3 months worth of reserves to keep the country functioning. Look for a drastic currency depreciation to come which will weigh on Egyptian assets.

      Back to Japan: On a balance of payments basis, Japan is not heading for a current account deficit. Japan was as close to deficit on its current account in 2002, as in 2012, and closer in 1997 and 1991. The surplus has ranged from a high of 44% of GDp to a low of 180% of GDP.

      I bet with the weakening of the Yen their export growth rate will increase leveling off any loss they are receiving from an increase in their import growth rate due to energy needs.

      Comment


      • #4
        Re: Bank of Japan to Pump $1.4 Trillion Into Economy

        Originally posted by PoZ
        If anything in Japan occurs it is still going to take a long time to play out.

        Egypt on the other hand, well that is more immediate.
        Egypt isn't trying to print $1.4 trillion

        Originally posted by PoZ
        Back to Japan: On a balance of payments basis, Japan is not heading for a current account deficit. Japan was as close to deficit on its current account in 2002, as in 2012, and closer in 1997 and 1991. The surplus has ranged from a high of 44% of GDp to a low of 180% of GDP.

        I bet with the weakening of the Yen their export growth rate will increase leveling off any loss they are receiving from an increase in their import growth rate due to energy needs.
        If Japanese exports are uncompetitive purely because of the difference in exchange rate between JPY and CHY, then exports could be expected to increase.

        However, if there are secular differences in labor costs between Japan and China, it is doubtful that a 25% decrease in the yen's exchange rate will make much difference.

        Comment


        • #5
          Re: Bank of Japan to Pump $1.4 Trillion Into Economy

          Originally posted by c1ue View Post
          Egypt isn't trying to print $1.4 trillion



          If Japanese exports are uncompetitive purely because of the difference in exchange rate between JPY and CHY, then exports could be expected to increase.

          However, if there are secular differences in labor costs between Japan and China, it is doubtful that a 25% decrease in the yen's exchange rate will make much difference.
          Kind of late for Japan to be trying emulate "The Fed"...

          Comment


          • #6
            Re: Bank of Japan to Pump $1.4 Trillion Into Economy

            I'm starting to wonder if Kyle Bass is about to become the richest man in the world, given his recent purchase of half a TRILLION dollars worth of options betting Japan will blow up. Here's Kyle's 7 minute CNBC video interview today on the latest BoJ moves. (sorry video won't embedd here)
            Warning: Network Engineer talking economics!

            Comment


            • #7
              Re: Bank of Japan to Pump $1.4 Trillion Into Economy

              Originally posted by Adeptus View Post
              I'm starting to wonder if Kyle Bass is about to become the richest man in the world, given his recent purchase of half a TRILLION dollars worth of options betting Japan will blow up. Here's Kyle's 7 minute CNBC video interview today on the latest BoJ moves. (sorry video won't embedd here)
              Yes, but what instrument is he buying those options on? I know him and a few of the others at his firm.

              I know they own interest rate derivatives and are short 10 year JGBs and the Yen. Obviously he is making money on the Yen short, thats not rocket science.

              I know last year his Japan Macro Opp fund lost a lot of money as it is an "option based, capital exhaustion vehicle" and the IR people there "won't give away performance numbers" when I asked for them.

              When was the last time someone asked for performance numbers from a hedge fund and they said no they don't give those out?

              He has been on TV the last 2 years talking his book trying to drum up people to help him short Japan which smacks of desperation.

              As his correspondence said in January "Hayman believes that a significant series of developments in the macroeconomic and political environment have set the course for a major devaluation of the Yen followed by severe instability in the bond markets over the course of the next year. In our opinion now may be the last opportunity to take advantage of the remaing asymmetry in market mispricing of the risk inherent in the Japanese capital markets. We outline the developments and expected catalysts below:"

              Here is a one year chart of Japan's 10 year JGB: http://www.bloomberg.com/quote/GJGB10:IND

              They have been jawboning down the Yen since October yet the yields on the 10 year JGB have been declining all the way down to 0.45% which means the bond prices are increasing. Their Current Account Deficit has been weakening the last year and a half yet their yields continue to grind lower.

              I am sure he is losing lots of money on that trade and has been for years. He gave a time frame for Japan to blow up to me back in November and that was 1 year.

              I will give him until December of this year and let's see what happens.

              Will the Nikkei be at 16,000 by December or will it be at 6,000 in December? Will the 10 year JGB yield be at 2.0% in December or hovering around .50% as it is now?

              Attached is his January Japan Macro Opp update.
              Attached Files

              Comment


              • #8
                Re: Bank of Japan to Pump $1.4 Trillion Into Economy

                Originally posted by c1ue View Post
                Egypt isn't trying to print $1.4 trillion



                If Japanese exports are uncompetitive purely because of the difference in exchange rate between JPY and CHY, then exports could be expected to increase.

                However, if there are secular differences in labor costs between Japan and China, it is doubtful that a 25% decrease in the yen's exchange rate will make much difference.
                Right Egypt isnt trying to print 1.4 trillion but they are running out of capital fast. They could easily have a bond and currency crisis in the next 3 months compared to Japan.

                Japan needs a managed depreciation of their currency and not an out right devaluation. Sometimes I believe that people confuse those two words.

                Currently Japan is able to manage their exchange rate down in an ordered depreciation as they are given free reign from other Central Banks to do so.

                Kyle Bass states that they will have a devaluation. I am not quite sure I see them having a sudden change in their exchange rate of 20 or 30% more over night.

                The other Central Bankers are helping them in this regard and will allow the Yen to depreciate to help out the Japanese economy.

                Comment


                • #9
                  Re: Bank of Japan to Pump $1.4 Trillion Into Economy

                  Originally posted by ProdigyofZen View Post
                  Yes, but what instrument is he buying those options on? I know him and a few of the others at his firm.

                  I know they own interest rate derivatives and are short 10 year JGBs and the Yen. Obviously he is making money on the Yen short, thats not rocket science.

                  I know last year his Japan Macro Opp fund lost a lot of money as it is an "option based, capital exhaustion vehicle" and the IR people there "won't give away performance numbers" when I asked for them.

                  When was the last time someone asked for performance numbers from a hedge fund and they said no they don't give those out?

                  He has been on TV the last 2 years talking his book trying to drum up people to help him short Japan which smacks of desperation.

                  As his correspondence said in January "Hayman believes that a significant series of developments in the macroeconomic and political environment have set the course for a major devaluation of the Yen followed by severe instability in the bond markets over the course of the next year. In our opinion now may be the last opportunity to take advantage of the remaing asymmetry in market mispricing of the risk inherent in the Japanese capital markets. We outline the developments and expected catalysts below:"

                  Here is a one year chart of Japan's 10 year JGB: http://www.bloomberg.com/quote/GJGB10:IND

                  They have been jawboning down the Yen since October yet the yields on the 10 year JGB have been declining all the way down to 0.45% which means the bond prices are increasing. Their Current Account Deficit has been weakening the last year and a half yet their yields continue to grind lower.

                  I am sure he is losing lots of money on that trade and has been for years. He gave a time frame for Japan to blow up to me back in November and that was 1 year.

                  I will give him until December of this year and let's see what happens.

                  Will the Nikkei be at 16,000 by December or will it be at 6,000 in December? Will the 10 year JGB yield be at 2.0% in December or hovering around .50% as it is now?

                  Attached is his January Japan Macro Opp update.
                  Huge volatility in the JGB swaps mkt with 10yr swaps spiking to 80bps from the mid 50s and settling in the mid 60s. We'll see if it was a one day blip or not, or is something stirring in the JGB mkt. May mean nothing.

                  My feeling is that Japan is "all-in," looking to purch 78 billion of bonds monthly, much more on a relative basis that Bernanke, and like Soros mentioned today, if they get the inflation they're asking for and people start moving into other currency or foreign assets, who knows what may happen. People talking that to get to 2% inflation the yen has to weaken much more, but it's certainly a crowded trade.

                  My feeling is Japan will blow up, just a matter of time and will Bass's premium decay to zero before that. I predict if he's continually doing new tranches of his Japan fund, he'll hit a home run at some point, but some will decay away first.

                  I think Japan blowing up and it's repricussions may be the trigger that gets our Govt to act, much like EJ talks about how there needs to be a crisis to get opposite parties to come together for a solution.

                  Comment


                  • #10
                    Re: Bank of Japan to Pump $1.4 Trillion Into Economy

                    Originally posted by ProdigyofZen View Post
                    Yes, but what instrument is he buying those options on? I know him and a few of the others at his firm.

                    I know they own interest rate derivatives and are short 10 year JGBs and the Yen. Obviously he is making money on the Yen short, thats not rocket science.

                    I know last year his Japan Macro Opp fund lost a lot of money as it is an "option based, capital exhaustion vehicle" and the IR people there "won't give away performance numbers" when I asked for them.

                    When was the last time someone asked for performance numbers from a hedge fund and they said no they don't give those out?

                    He has been on TV the last 2 years talking his book trying to drum up people to help him short Japan which smacks of desperation.

                    As his correspondence said in January "Hayman believes that a significant series of developments in the macroeconomic and political environment have set the course for a major devaluation of the Yen followed by severe instability in the bond markets over the course of the next year. In our opinion now may be the last opportunity to take advantage of the remaing asymmetry in market mispricing of the risk inherent in the Japanese capital markets. We outline the developments and expected catalysts below:"

                    Here is a one year chart of Japan's 10 year JGB: http://www.bloomberg.com/quote/GJGB10:IND

                    They have been jawboning down the Yen since October yet the yields on the 10 year JGB have been declining all the way down to 0.45% which means the bond prices are increasing. Their Current Account Deficit has been weakening the last year and a half yet their yields continue to grind lower.

                    I am sure he is losing lots of money on that trade and has been for years. He gave a time frame for Japan to blow up to me back in November and that was 1 year.

                    I will give him until December of this year and let's see what happens.

                    Will the Nikkei be at 16,000 by December or will it be at 6,000 in December? Will the 10 year JGB yield be at 2.0% in December or hovering around .50% as it is now?

                    Attached is his January Japan Macro Opp update.
                    This thread could have been titled "Kyle Bass gets his ass handed to him by the Bank of Japan."

                    This is exactly why we are never short the balance sheets of central banks.

                    If Bass has any money left by the time the BoJ does run into trouble in, say, 2019, it won't be enough to offset his losses up to that time.

                    Advice to Bass: Short the yen, long the Nikkei, fine, but the BoJ's balance sheet is bigger than yours. Don't short it.

                    Comment


                    • #11
                      Re: Bank of Japan to Pump $1.4 Trillion Into Economy

                      Originally posted by littleshark View Post
                      Huge volatility in the JGB swaps mkt with 10yr swaps spiking to 80bps from the mid 50s and settling in the mid 60s. We'll see if it was a one day blip or not, or is something stirring in the JGB mkt. May mean nothing.

                      My feeling is that Japan is "all-in," looking to purch 78 billion of bonds monthly, much more on a relative basis that Bernanke, and like Soros mentioned today, if they get the inflation they're asking for and people start moving into other currency or foreign assets, who knows what may happen. People talking that to get to 2% inflation the yen has to weaken much more, but it's certainly a crowded trade.

                      My feeling is Japan will blow up, just a matter of time and will Bass's premium decay to zero before that. I predict if he's continually doing new tranches of his Japan fund, he'll hit a home run at some point, but some will decay away first.

                      I think Japan blowing up and it's repricussions may be the trigger that gets our Govt to act, much like EJ talks about how there needs to be a crisis to get opposite parties to come together for a solution.
                      I think the swap movement occurred because the 10 year JGB yields went from 0.56 to 0.45% in a day due to the BOJ announcement. The yield today jumped back up to 0.53%.

                      The Japanese companies who would JGBs are not going to sell them if inflation gets to 2%. I expect inflation to hit 1.6 to 1.8% in Japan and not quite get to the 2% target.

                      Bass started his Japan fund back in 2009 I believe so his premium has decayed quite a bit or even been exhausted with the original tranche since they are usually 3 year vehicles.

                      Again IMO this is a managed coordinated depreciation of the Yen back toward 116 - 130 to the USD.

                      Where do you see the JGB swaps market? Or are you reading that from ZH?

                      Comment


                      • #12
                        Re: Bank of Japan to Pump $1.4 Trillion Into Economy

                        Originally posted by EJ View Post
                        This thread could have been titled "Kyle Bass gets his ass handed to him by the Bank of Japan."

                        This is exactly why we are never short the balance sheets of central banks.

                        If Bass has any money left by the time the BoJ does run into trouble in, say, 2019, it won't be enough to offset his losses up to that time.

                        Advice to Bass: Short the yen, long the Nikkei, fine, but the BoJ's balance sheet is bigger than yours. Don't short it.
                        A great pairs trade has been short the yen and long the Nikkei. I mean since Jan 22nd you could be up 28.66% on that trade alone and since mid-November up 50% on just long Nikkei in the futures market.

                        I know so many long only mutual fund money managers who are pumping money into Japanese stocks the last few months.

                        Adeptus and Littleshark, here is a decent IMF paper on the risks to the JGB bond market. http://www.imf.org/external/pubs/ft/wp/2011/wp11292.pdf
                        Last edited by ProdigyofZen; 04-05-13, 10:57 AM.

                        Comment


                        • #13
                          Re: Bank of Japan to Pump $1.4 Trillion Into Economy

                          Originally posted by ProdigyofZen View Post

                          Where do you see the JGB swaps market? Or are you reading that from ZH?
                          On Bloomberg.

                          Comment


                          • #14
                            Re: Bank of Japan to Pump $1.4 Trillion Into Economy

                            Originally posted by littleshark View Post
                            On Bloomberg.
                            Oh you mean Bloomberg terminal. Unfortunately I dont have one of those anymore....

                            Comment


                            • #15
                              Re: Bank of Japan to Pump $1.4 Trillion Into Economy

                              Originally posted by ProdigyofZen View Post

                              Again IMO this is a managed coordinated depreciation of the Yen back toward 116 - 130 to the USD.
                              I wonder what that means if they get it there? JPY was there from 2004-2008 in one of the greatest global expansions we've seen, and their economy went nowhere.

                              Seems to me that their products have gotten worse (electronics/autos) relative to, for example, South Korea in the meantime, their finances have gotten worse, and their energy situation is worse. They're doing nothing to structurally change their economy, just resorting to mimicking the fed in a grander way.

                              So I understand they may recieve some competitive edge back, but now the global economy is much weaker, so what does it really mean. Aren't they just extending the inevitable?

                              I guess at that point it's the next guys turn in line to depreciate, either the USD or EUR.

                              Comment

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