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For the first time in history, a central bank has managed to print enough money to buy enough assets to surpass the nation’s annual GDP.

Under the watchful eye of Kuroda, and the overseeing (but independent) hand of Abe, The Bank of Japan’s balance sheet grew to 553.6 trillion yen as on November 10th – that is larger than Japan’s annualized nominal seasonally-adjusted GDP of 552.8 trillion yen (as of the end of June).

Some context for just how crazy this is, here is The Fed vs US GDP…

And putting it all together…

What happens next?

World Finance Leaders Scramble For A Solution To Escalating Trade War, Rising Rates

October 16, 2018

World Finance Leaders Scramble For A Solution To Escalating Trade War, Rising Rates

The main takeaway from the IMF and World Bank Group annual meeting in Bali, which hosted financial ministers and central bank governors from around the world this weekend, was that global trade tensions were having a profound effect on global growth and need to be solved.

Most of the participants – save for China and Mexico – seemed united and in agreement that trade talks have to continue. Bank of Japan Governor Haruhiko Kuroda stated that it was essential to have dialogue on trade while at the same time, the president of Brazil’s central bank, Ilan Goldfajn, noted that the trade wars were one of the biggest threats to emerging markets. Indonesia’s president Jokowi Widodo said starkly that “winter is coming” for the global economy if there is no solution on trade.

However, not everybody was prepared to find a solution at any cost. Bank of China governor Yi Gang stated that he was preparing for the worst, despite still seeking a constructive resolution to the problem. Gang stated at the meeting: “You see a lot of people in China now preparing for this trade tension to be a prolonged situation. The downside risks from trade tensions are significant.”

Mexico also stepped in to voice its support for China. Former Mexican president Ernesto Zedillo told China that they should follow the example set by Mexico and Canada during their negotiations with the United States, because they both were able to secure the terms that they wanted, even though some may disagree violently with this hot take.

Zedillo said, “Mexico and Canada made clear that they’d rather not have Nafta than having the deal that the U.S. wanted. In the end, Mexico and Canada got their way in every single issue that had been drawn as a red line. So I hope China doesn’t blink.”

…click on the above link to read the rest of the article…

Watch Live: The World’s Top 3 Central Bankers Discuss What’s Next

June 20, 2018

Watch Live: The World’s Top 3 Central Bankers Discuss What’s Next

Update: Powell has maintained his hawkish tone from last week’s press conference with his comments in Sintra on the labor market and monetary policy. He expressed confidence in the US economy and said “the case for continued gradual rate hikes is strong.”

According to CitiFX’s market commentary, its traders highlighted one dovish remark when Powell was speaking about the uncertainty surrounding the NAIRU: “Natural rate estimates have always been uncertain, and may be even more so now as inflation has become less responsive to the unemployment rate…as I mentioned, a tight labor market could draw more people into the labor force.”

Here are the headlines:

POWELL SAYS CASE FOR CONTINUED GRADUAL RATE HIKES IS `STRONG’
POWELL: JOB MARKET TO STRENGTHEN FURTHER, SUPPORT WAGE GROWTH
FED’S POWELL REMARKS IN TEXT OF SPEECH AT ECB FORUM IN PORTUGAL
POWELL: INFLATION HAS MOVED UP CLOSE TO FED’S 2% GOAL
POWELL: U.S. ECONOMY PERFORMING VERY WELL
POWELL SAYS GRADUAL RATE-HIKE CASE `BROADLY SUPPORTED’ ON FOMC
POWELL: YET TO SEE INFLATION STAY NEAR GOAL ON SUSTAINED BASIS
POWELL: U.S. FISCAL POLICY TO ADD TO DEMAND OVER NEXT FEW YEARS

* * *

European Central Bank President Mario Draghi, Fed Chairman Jerome Powell and Bank of Japan Governor Haruhiko Kuroda will appear on a policy panel Wednesday that’s set to begin at 15:30 CET (that’s 10:30 am ET). They will be joined by Philip Lowe, the Governor of the Reserve Bank of Australia. The panel is the last big event of the 2018 ECB annual forum on central banking, which was held in Sintra, Portugal and featured the theme “price and wage-setting in advanced economies.”

Of course, there is likely to be disagreement among the 4 (or 3 big guys) as Kuroda remains pedal to the metal on his easing policies (despite the stealth tapering), Draghi has started to adjust to a tightening regime, and Powell is in full normalization mode.

All of which is ironic given that all three face notable demises in their recent economic data…

Watch the panel live below:

Japan Expects to Hit 2% Inflation in 5 Years, Aggressive Easing Will Continue

April 24, 2018

Japan Expects to Hit 2% Inflation in 5 Years, Aggressive Easing Will Continue

The BOJ thinks Japan may hit its 2% inflation target in 5 years. Kuroda says risks are to the downside.

It may take Japan five more years to reach its 2% inflation targetaccording to BOJ governor Haruhiko Kuroda.

“Sometime within the next five years, we will reach [our] 2 percent inflation target,” Governor Haruhiko Kuroda told CNBC’s Sara Eisen over the weekend. Once that level is reached, we will start “discussing how to gradually normalize the monetary condition.”

Inflation remains low. Japan reported its consumer price index, excluding fresh food and energy, rose half a percent in the 12 months through March.

“In order to reach [our] 2 percent inflation target, I think the Bank of Japan must continue very strong accommodative monetary policy for some time,” Kuroda added in his interview with CNBC.

Protectionism, unexpected rapid tightening of monetary policy in some countries, and geopolitical tensions in North Korea and the Middle East pose potential risks, Kuroda said.

It’s pretty amazing how Japan has failed to destroy its currency despite decades of trying. Once again, I repeat my foolproof plan to cure low inflation in Japan.

Mish’s Four Pronged Proposal to End Japanese Deflation

Negative Sales Taxes
One Percent Tax, Per Month, on Government Bonds
National Tax Free Lottery
Hav-a-Kid

For details please see Mish’s Sure Fire Proposal to End Japanese Deflation.

Why wait another five years?

Here is my follow-up article that brings MMT into the picture: Note to BoJ: Try Something Different or Look Perpetually Foolish.

Kuroda Shocks Markets Hinting At QE End; Nikkei, USDJPY Tumble

March 2, 2018

Kuroda Shocks Markets Hinting At QE End; Nikkei, USDJPY Tumble

In addition to the suddenly escalating global trade war, overnight traders had one more thing to worry about: another central bank unwinding its QE program. This happened shortly after midnight ET, when BOJ Governor Kuroda unexpectedly announced that the Bank of Japan will start thinking about how to exit its massive monetary stimulus program around the fiscal year starting in April 2019, and that there could be policy change before the 2% inflation target is achieved, marking the first time he’s provided any clear guidance on timing for normalizing policy.

“Right now, the members of the policy board and I think that prices will move to reach 2 percent in around fiscal 2019. So it’s logical that we would be thinking about and debating exit at that time too,” he said. “I’m not saying that the negative rate of 0.1 percent and the around 0 percent aim for 10-year bond yields will never change, but it is possible. We will be discussing that at each policy meeting.”

In immediate reaction, Japanese shares fell sharply, the Nikkei sliding as much as 2.9% as the Yen surged as much as 0.5%, with the USDJPY tumbling below 106, a 15 month low, while JGB yields jumped across the curve.

“Kuroda’s comments are important because he officially acknowledged a change in policy was likely before the end of fiscal year 2019,” said Rodrigo Catril, a currency strategist at National Australia Bank Ltd. in Sydney. “A move sub-105 yen over the coming days wouldn’t be surprising under the current risk off/trade war concern environment”

In testimony that lasted about three hours, Kuroda seemed to try mitigating the negative market impact by saying that this doesn’t affect his “overshooting commitment,” which pledges the BOJ to continue expanding the monetary base until inflation exceeds 2 percent in a stable manner.

…click on the above link to read the rest of the article…

Weekly Commentary: Arms Race in Bubbles

October 21, 2017

Weekly Commentary: Arms Race in Bubbles

The week left me with an uneasy feeling. There were a number of articles noting the 30-year anniversary of the 1987 stock market crash. I spent “Black Monday” staring at a Telerate monitor as a treasury analyst at Toyota’s US headquarters in Southern California. If I wasn’t completely in love with the markets and macro analysis by that morning, there was no doubt about it by bedtime. Enthralling.

As writers noted this week, there were post-’87 crash economic depression worries. In hindsight, those fears were misplaced. Excesses had not progressed over years to the point of causing deep financial and economic structural maladjustment. Looking back today, 1987 was much more the beginning of a secular financial boom rather than the end. The crash offered a signal – a warning that went unheeded. Disregarding warnings has been in a stable trend now for three decades.

Alan Greenspan’s assurances of ample liquidity – and the Fed and global central bankers’ crisis-prevention efforts for some time following the crash – ensured fledgling financial excesses bounced right back and various Bubbles hardly missed a beat. Importantly, financial innovation and speculation accelerated momentously. Wall Street had been emboldened – and would be repeatedly.

The crash also marked the genesis of government intervention in the markets that would evolve into the previously unimaginable: negative short-term rates, manipulated bond yields, central bank support throughout the securities markets, Trillions upon Trillions of central bank monetization and the perception of open-ended securities market liquidity backstops around the globe. Greenspan was the forefather of the powerful trifecta: Team Bernanke, Kuroda and Draghi. Ask the bond market back in 1987 to contemplate massive government deficit spending concurrent with near zero global sovereign yields – the response would have been “inconceivable.”

…click on the above link to read the rest of the article…

Nonsensical Global Worries Over Subdued Inflation: Yellen, Draghi, Kuroda

October 16, 2017

Nonsensical Global Worries Over Subdued Inflation: Yellen, Draghi, Kuroda

Central bank presidents at the Fed, the ECB, and Bank of Japan are all concerned over low inflation. The Fed wants to hike anyway, but the Bank of Japan will keep pursuing aggressive monetary easing. Meanwhile, asset prices are in the biggest ever bubble.

Bank of Japan

Bank of Japan Governor, Haruhiko Kuroda, says the BOJ Will Keep Pursuing Aggressive Monetary Easing.

“The Bank of Japan will consistently pursue aggressive monetary easing with a view to achieving the price stability target at the earliest possible time,” Mr. Kuroda said at a meeting of the Group of 30 in Washington.

“Achieving the 2% target is still a long way off,” Mr. Kuroda said.

“Once price increases become widespread, medium- to long-term inflation expectations for firms and households are expected to rise gradually and actual inflation will increase toward 2%,” he said.

ECB

ECB president Mario Draghi says the ECB must be ‘Persistent’ with Monetary Policy in Face of Weak Inflation.

‘It’s going to take time. We have got to be persistent with our monetary policy,” Draghi said on the sidelines of the meetings of the International Monetary Fund and World Bank in Washington, reported The Wall Street Journal.

Draghi gave an upbeat outlook on the 19-nation eurozone economy, but said inflation remains too weak, possibly due to subpar wage growth, he said. The ECB’s program of buying 60 billion euros ($70.9 billion) of bonds a month is set to expire in December. Policy makers are expected at a meeting on Oct. 26 to announce plans to begin scaling down the monthly purchases next year, but Draghi suggested the decision could be delayed again, the report said.

Fed

Fed chair Janet Yellen says the Fed is Watching Inflation Closely but Economy is Strong.

…click on the above link to read the rest of the article…

Just Because the Hedge Fund Wise Guys Have Forgotten

September 29, 2017

JUST BECAUSE THE HEDGE FUND WISE GUYS HAVE FORGOTTEN

Today’s post will be about Japanese yen vol, but I am sure to bore some readers with that topic, so I am starting with something a little more interesting. As many of you know, I am a little bit of a bitcoin skeptic. At the end of the day, I have trouble investing in the ledger in the sky.

Call me old-fashioned, call me a troglodyte, call me a bitter gold bug, call me whatever you want, I just can’t bring myself to get long bits in the cloud. And before you send me messages how I don’t understand it, don’t forget I was mining bitcoin before most of Wall Street had ever heard of it. So I am much more than just some trade-a-saurus that refuses to get with the times, I am the knob who passed on bitcoin at $5.

Yet I have the privilege of counting Tony Greer from TG Macro as one of my pals, and his enthusiasm about using crypto currencies for micro-payments has piqued my interest. From Tony’s great letter the other day:

For selfish reasons, this is the article that gets me most excited about bitcoin and the blockchain. The streamlining of media distribution is going to kick the door open for individuals to compete with publishing powerhouses and main stream periodicals.

Publishing content on Amazon, iTunes, even YouTube is extremely costly for the author/artist. Youtubers can’t earn money until they get 10,000 views. Apple and Amazon take between 30% and 75% for the right to their distribution networks. Since media consumption has gone digital, it’s been difficult to charge on a PER ARTICLE basis because of high transaction costs making it prohibitively expensive. All that’s about to change.

…click on the above link to read the rest of the article…

Both ECB And BOJ Are Just Months Away From Running Out Of Bonds To Buy

May 18, 2017

Both ECB And BOJ Are Just Months Away From Running Out Of Bonds To Buy

With the Fed contemplating whether to hike again next month and start “normalizing ” its balance sheet before the end of 2017, the two other major central banks are facing far bigger problems.

* * *

Two months after the BOJ quietly started tapering its QE program, when it also hinted it may purchase 18% less bonds than planned…

… Governor Haruhiko Kuroda admitted last week that the Bank of Japan’s bond holdings are currently growing at an annualized pace of only ¥60 trillion ($527 billion), 25% below the bottom-end of its policy range, and confirming that without making any formal announcement, the BOJ has quietly followed the ECB in aggressively tapering its bond buying program.

Under questioning from opposition party lawmaker Seiji Maehara, who noted that the pace of bond accumulation by the BOJ had slowed, Kuroda said the trend could continue, without elaborating. He noted that the central bank’s target is to control interest rates rather than the amount of bond purchases. “This development signals to me that they are going with rates without talking about a quantitative target,” said Atsushi Takeda, an economist at Itochu Corp. in Tokyo. “That will be better when they think about an exit.”

While the BOJ’s purchase slowdown has been visible for months in data released by the central bank, Kuroda’s confirmation of this reality in parliament last Wednesday marks a stark change. As Bloomberg notes, until now he’d struggled to emphasize that the annual pace could vary from an indicative 80 trillion yen, depending on the state of the economy and financial markets. He now appears to have thrown in the towel. Meanwhile, investors are watching for any hint of tightening in monetary policy amid speculation that the central bank’s bond purchase regime is unsustainable and as consumer prices in Japan are expected to pick up later this year.

…click on the above link to read the rest of the article…

Going… Going… Gone! The EU Begins to Splinter

June 25, 2016

Going… Going… Gone! The EU Begins to Splinter

Dark Social Mood Tsunami Washes Ashore

Early this morning one might have been forgiven for thinking that Japan had probably just been hit by another tsunami. The Nikkei was down 1,300 points, the yen briefly soared above par. Gold had intermittently gained 100 smackers – if memory serves, the biggest nominal intra-day gain ever recorded (with the possible exception of one or two days in early 1980). Here is a picture of Haruhiko Kuroda in front of his Bloomberg monitor this morning:

kuroda head This can’t be happening… please… let me wake up and realize that it was all just a bad dream…

Photo credit: Reuters

The War Street Journal immediately exhorted the poor man to “go big or go home” – in an article brimming with the usual Keynesian central planning clap-trap (we need more inflation, a strong currency is “bad”, rev up the printing presses, yada-yada…)

Touching less than 99 yen to the dollar, this brings Japan’s currency back to where it started just as Abenomics was ramping up in 2013. With interest rates already negative, a weak currency is one of the few tools Japan has at its disposal. A strong currency will be devastating for efforts to engineer inflation. Japan will need to prepare a response.

[…]

Bank of Japan Gov. Haruhiko Kuroda will be under pressure to go deeper on negative rates, even though doing so in the first place, in January, has seen the yen strengthen, not weaken.

[ed. note: yes, do more of what hasn’t worked! This is also straight from the Keynesian playbook…]

[…]

If negative rates aren’t the answer, what is? Increasing asset purchases of bonds and exchange-traded funds are an option, but there is limited room to expand those programs and the effect, only marginal at this point. Mr. Kuroda has been dismissive of more aggressive helicopter money-like moves that toe into fiscal policy.

…click on the above link to read the rest of the article…

Turning Stones Into Bread – The Japanese Miracle

June 4, 2016

Turning Stones Into Bread – The Japanese Miracle

Stuffing the Futon

Our friend Ramsey Su just asked what Haruhiko Kuroda and Shinzo Abe are going to do now in light of the strong yen (aside from perhaps doing the honorable thing). Isn’t it time to just “wipe out some debt with the stroke of a pen”?

Samuarai Futon The modern Samurai futon!

We will return to that question further below, but first a few words on the new Samurai futon. Apparently the Japanese are becoming more than a little antsy about Kuroda-san’s negative interest rate policy (and the threats of more of the same coming down the pike). Bloomberg informs us of the latest developments in this saga: “Manga Worker Stuffs Cash in Futon to Flee Japan’s Negative Rates”:

When the Bank of Japan unexpectedly announced negative interest-rate policies in January, the first thing Tomomi Sato did was withdraw a 10th of the money in her bank account and stash it at home.

“It made me think of bank runs and shutdowns like I’ve heard there were in the past,” said the 30-something assistant to manga comic artists, who commutes for two hours from a small apartment in Tokyo’s suburbs. “Eventually, I feel like they’ll start charging me to keep my money there. When I think about that, I begin to worry.”

Sato is emblematic of a challenge facing the central bank that rates below zero only deepened: average Japanese aren’t feeling the benefits of more than three years of extraordinary monetary stimulus, and cash withdrawals suggest they are losing faith. About 40 trillion yen ($360 billion) has piled up in homes across Japan, according to a Dai-ichi Life Research Institute estimate — equivalent to about 8 percent of gross domestic product. That’s money banks could be lending on or using to buy bonds.

(emphasis added)

…click on the above link to read the rest of the article…

Kuroda-San in the Mouth of Madness

May 14, 2016

Kuroda-San in the Mouth of Madness

Deluded Central Planners

Zerohedge recently reported on an interview given by Lithuanian ECB council member Vitas Vasiliauskas, which demonstrates how utterly deluded the central planners in the so-called “capitalist” economies of the West have become. His statements are nothing short of bizarre (“we are magic guys!”) – although he is of course correct when he states that a central bank can never “run out of ammunition”.

Bank of Japan (BOJ) Governor Haruhiko Kuroda attends a news conference at the BOJ headquarters in Tokyo, Japan, December 18, 2015. BoJ governor Haruhiko Kuroda Photo credit: Toru Hanai / Reuters

The mental state of BoJ governor Haruhiko Kuroda may be even more precarious though. As Marketwatch reports, he recently gave an interview to German financial newspaper Börsen-Zeitung, in which he inter alia threatened even more BoJ intervention:

Bank of Japan Gov. Haruhiko Kuroda said the central bank “can still ease [its] monetary policy substantially” if necessary, in an interview with German financial newspaper Börsen-Zeitung published Wednesday.

This is per se not surprising, although one wonders what Kuroda thinks can possibly be achieved by upping the ante on this:

Assets held by the BoJ vs. the Nikkei index – April 1999 = 100 – click to enlarge.

We have added the Nikkei Index to the chart of BoJ assets above because inflating stock prices is one of the central bank’s declared goals – its stake in ETFs listed on the Tokyo Stock Exchange has in the meantime exploded to more than 50% (which we believe is eventually going to create a socialist calculation-type problem).

The results of this mad-cap buying spree are decidedly underwhelming so far. Although the pockets of central banks are of unlimited depth, this is also no big surprise, as central bankers are probably the worst traders in the world. One also wonders how further monetary easing is supposed to “improve” on this situation:

…click on the above link to read the rest of the article…

“We Aren’t Thinking About It At All”, Or How Kuroda Just Assured That Helicopter Money Is Coming To Japan

April 21, 2016

“We Aren’t Thinking About It At All”, Or How Kuroda Just Assured That Helicopter Money Is Coming To Japan

On Friday, courtesy of a Deutsche Bank report laughably titled Helicopter Money 101, we showed how to trade the coming helicopter money paradrop that will be provided by central banks in the very near future. When asking the question of who would be the first to try it, one of the first central banks that comes to mind (both Deutsche’s and ours) would be the Bank of Japan. To date, the BoJ has tried everything in order to increase inflation (or simply to generate any, for that matter), and boost their economy. Everything that is, except for helicopter money (giving money directly to the government or citizens and bypassing all current institutions acting as middle men).

Yesterday according to Bloomberg, BoJ governor Haruhiko Kuroda said that he isn’t thinking about using so-called helicopter money, and that the notion contradicts the law.

“In advanced nations nowadays, fiscal policy is determined by the government and the parliament while monetary policy is decided by the central bank, which is separate from government and parliament,” Kuroda told lawmakers in the Japanese Diet. “Deciding and implementing these things together would contradict the current legal framework. So unless the existing legal framework changes, helicopter money isn’t possible, and we at the Bank of Japan aren’t thinking about it at all.“

If you read the end of that carefully, you’ll want to revisit our article on how to trade the coming helicopter money (here). First, we’ll start with the fact that Deutsche Bank already has an answer on how to work around the “current legal framework”, and it’s called simply getting the legislature’s approval.

…click on the above link to read the rest of the article…

Yellen, Draghi, Kuroda: Deranged Lab Rats

March 23, 2016

YELLEN, DRAGHI, KURODA: DERANGED LAB RATS

The stock market has regained all of its loses year to date as economic indicators continue to flash red, corporate profits continue to plunge, consumers continue to spend less at retailers, real wages continue to fall, and housing sales continue to decline. The entire dead cat bounce has been generated through corporate stock buybacks, Wall Street lemmings trying to make up for their terrible year to date investing performance, and central bankers who will stop at nothing to verbally manipulate markets higher – since their monetary machinations over the last seven years have been a miserable failure in reviving the real economy.

As John Hussman points out, the market is poised to deliver nothing over the next decade, with a 40% to 55% “dip” in the foreseeable future. I wonder how many barely sentient, iGadget addicted, non-questioning, normalcy bias dependent zombies are prepared for a third Federal Reserve generated market collapse in the last 15 years?

From a long-term investment standpoint, the stock market remains obscenely overvalued, with the most historically-reliable measures we identify presently consistent with zero 10-12 year S&P 500 nominal total returns, and negative expected real returns on both horizons. From a cyclical standpoint, I continue to expect that the completion of the current market cycle will likely take the S&P 500 down by about 40-55% from present levels; an outcome that would not be an outlier or worst-case scenario, but instead a rather run-of-the-mill cycle completion from present valuations.

The only people who can’t see the recession in front of their noses are central bankers who are paid to lie, obfuscate, and mislead; corrupt politicians trying to get elected or re-elected; and media pundits whose job is to keep the sheep sedated with positive propaganda and a never ending stream of trivialities and drivel.

…click on the above link to read the rest of the article…

Draghobert the Terrible Strikes Again

March 13, 2016

Draghobert the Terrible Strikes Again

A Whiff of Panic

Ahead of Thursday’s ECB meeting, there was a widespread consensus that Europe’s chief printing press supervisor would make up for the alleged “mistake” of under-delivering on monetary lunacy last time around. Therefore, a sizable dose of fresh absurdities had to be expected, with only small disagreements on the details. It is fair to say the man didn’t disappoint.

Draghobert the Terrible, trying to assault the euro again Photo credit: Michael Probst / AP Photo

There was an even greater consensus that the punters populating the casino were eagerly awaiting such news, and that they stood ready to deploy wagon-loads of money (mostly other people’s) in the direction wished for by the central planning puppeteers. This particular detail didn’t quite work out as expected, at least not at first. For instance, after an initial swoon, the ECB’s very own confetti became more rather than less expensive.

June euro futures, 20 minute candles. At first, the euro did what it was “supposed” to do – and then it went “yen” on the Dragon and his minions – click to enlarge.

Similar scenes played out elsewhere. Here is for instance a 20 minute chart of the June Bund futures contract, which was subject to a similar sudden change in market opinion:

Instant hangover in Bund futures – click to enlarge.

Other playthings were similarly impacted, from the DAX to gold. All the stuff that used to habitually react in a certain manner to more ECB largesse essentially did the opposite of what it was “supposed” to do.

Readers may recall the last time when a similar thing happened. That was on occasion of Kamikaze Kuroda’s attempt to smite putative yen bulls by cutting the BoJ’s deposit rate into negative territory.

That didn’t quite work out as planned either… – click to enlarge.

…click on the above link to read the rest of the article…

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