Socio-Economics History Blog

Socio-Economics History Blog

Bond Meltdown’s Next Driver Is BOJ Policy Implosion

by mosesman

  • Bond Meltdown’s Next Driver Is BOJ Policy Implosion
    by Garfield Reynolds, Bloomberg Markets Live Commentator and Reporter, via https://www.zerohedge.com/
    The pace of this week’s Treasuries rout – and post-FOMC relief – has focused most eyes squarely on US markets, but the real action going forward is just as likely to be in Tokyo. The Bank of Japan’s massive debt purchases to cap yields may have already passed their use-by date, and that threatens to unleash fresh storms on global bond markets that are about as stressed as they have ever been.
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    While the Fed’s 75-basis-point hike came with mild-enough forward guidance to soothe panicked markets, the BOJ still faces pressure from a widening policy gap to at least acknowledge it’s time to tweak its own settings when it concludes its own meeting on Friday.
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    BOJ Governor Haruhiko Kuroda is nothing if not determined, and he has been sticking to his line that the recent pickup in Japanese inflation will be transitory — a word that has fallen out of favor with his peers — meaning that he considers it premature to adjust the world’s loosest policy.
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    The central bank is doubling and tripling down on buying up ever-greater chunks of what is left of the Japanese bond market to cap 10-year yields at 0.25% and maintain curve control. This week has seen cries that this can’t go on for much longer reach a crescendo.
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    The yen tumbled through 135 per dollar this week to a 24-year low, which adds to the stickiness for inflation as well as taking the currency down so far that the real-world impacts counteract much of the benefits of easier policy, including by crippling consumer confidence.
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    The currency’s plunge also spreads turmoil because it means Japan’s deep- pocketed investors — long a key player in Treasuries and other major developed bond markets — need to hedge investments abroad     at a time when BOJ-Fed policy divergence is so stark that 10- year US yields are actually negative for yen-based investors.
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    read more.

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