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Japan To Concede Defeat On Inflation Target: Report

in FX by

Well, we suppose you can’t really blame them. After all, every attempt to achieve Kuroda’s elusive 2% inflation target and thus drag Japan out of the deflationary doldrums has thus far failed miserably…


…so it’s only a matter of time before you have to throw in the towel or at least kick the proverbial can.

Sure enough, just across the terminal:

  • Bank of Japan is considering cutting its CPI forecast for fiscal 2017 to low 1% range from the current 1.7%, Sankei reports, without attribution.
  • BOJ to release forecasts Nov. 1

Below find the full story, translated


Bank of Japan is in the “Outlook for Economic Activity and Prices (outlook report)” to publish on November 1, went into the study to be revised downward the inflation rate outlook for the 2017 fiscal year. Be adjusted in the direction to lower from the previously announced (July 31) 1 – 7% of the time to 1 percent the first half. Possibility of achieving time also put off of 2% of the price target that you are “in the 29 fiscal year” it came out.

The yen and crude oil weaker, consumer spending sluggish growth and factors. Consumer of August (excluding fresh food) price index has sunk into negative territory in the 6 consecutive months year-on-year 0, 5% decline.

September of companies of price outlook, inflation rate expected after one year of full-scale all industries includes weak such as 0, 1 point decline from an average of 0.6 percent and the previous June survey.

In the outlook report in July, while lowering the growth rate forecast of 28 fiscal year to 0, 1% from 0, 5% of the April, 29 fiscal year is also, such as the effect of large-scale economic stimulus measures by the government laid out, “prices rise to towards “the decision, it affirmed the 1-7%.

Bank of Japan is also likely to go ahead on additional monetary easing in monetary policy decision meeting of October 31 to November 1, “ahead of the US presidential election, the Bank of Japan movement difficult” from the economists out the voice of the there.


Only one thing to say…


BOE Surveys Economy’s “Contours”, Comapres Brexit To “A Series Of Cricket Matches”

in central banks by

Well someone is going to have to shoot first – or maybe not.

Draghi deferred to Carney last week and now, Carney has punted to Yellen as the Bank of England stands pat. Here’s the BBG bullet summary:

BOE Keeps Rate at 0.25%; Vote 9-0; Holds QE at GBP435b

Bank of England says MPC unanimous on keeping gilt and GBP10b corporate bond purchase targets on hold.
BOE says MPC majority expect another rate cut this year if economy is broadly consistent with their August projections
Kristin Forbes, Ian McCafferty say current outlook don’t warrant additional gilt purchases; Forbes says argument also applies to corp. bond purchases
BOE says initial impact of August stimulus is encouraging
BOE says some near-term indicators better than expected; 2H GDP growth may slow less than forecast in August
BOE says MPC view of “contours of economic outlook” are unchanged
BOE says policy makers will assess recent news at November forecast round
BOE sees inflation reaching 2% target in 1H 2017

This is what the governor came up with on Wednesday with regard to Brexit:

“We thought about that and actually you’re more exhausted after the marathon than after the sprint so this is the wrong metaphor,” Carney said. “The right analogy is this is a Test series, a series of Test matches.”

Doesn’t quite top Kuroda’s “Peter Pan” moment but it comes pretty damn close on the absurdity meter.

Here’s some desk chatter from Citi:

“The Bank of England was a non-event as judged by interbank volumes traded – if one looks at the 15 minutes post announcement the July BoE, volumes were almost 10 times higher. In fact, interbank volumes from 07:30 to 07:45 BST in GBP were almost equally as high as in the 15 minutes after rate announcement today.”

“Interbank volumes were as low as the August 2016 average today with continued interest in USDCAD. In recent sessions we’ve seen a bias to buy USDCAD, which has continued today. We also saw EURUSD and GBPUSD buying today which where the determining factor of the net USD selling seen this morning.”

“Visible liquidity in EM pairs has been getting worse this week and trade impact metrics are also pointing to deterioration in liquidity.”

And for those interested, here’s a breakdown of what they can buy in the corporate sector:


So, over to you Janet and then we’ll get Kuroda (speaking of the BoJ, they need to get to work, because the Topix has fallen for six straight days on fears Kuroda may take rates even further into negative territory. An we all know his foray into NIRPdom turned out.

“A Second Fed Increase Isn’t Priced In Until Oct. 2018. It’s hard to see this as a positive backdrop.”

in Credit/Debt by

Just moments ago, we brought you Deutsche Bank’s take on the “mania” we are supposedly mired in. If the Fed raises short-term rates, keep the long-end anchored, and everything will be fine, right? We guess. We hope. Because other wise, a September hike will be a bloodbath.

Here’s Bloomberg’s take on where we’re headed:

“Fed officials appear determined to give themselves room to raise rates, fighting back against a yield curve that threatens to limit what the bank can do. It’s narrowed as expectations for growth and inflation have fallen. The trend could tie Janet Yellen’s hands.
Slimmer spreads increase the threat that the Fed will cause short-term yields to climb over those in the long-term. Officials don’t want that as seven of the last eight inverted curves have presaged a recession.”
“The gap between two- and 10-year yields typically narrows when monetary policy tightens. It’s narrowed to 87 basis points (falling as low as 75) from 122 as the Fed has retreated from plans to increase rates four times as global turmoil and poor data undermined their plans. Boston Fed President Eric Rosengren forcefully argued against waiting to raise rates. Governor Lael Brainard, a member of Janet Yellen’s inner circle, suddenly added a Sept. 12 appearance to the calendar and could bolster that case. Officials have been recognizing the economy may not grow quickly enough to return the terminal rate to former levels. The Fed has gradually lowered its forecast to 3% from 4% in 2014. Many investors see even that as too high. The market is also dubious about the risk of inflation getting off its back and becoming runaway. Inflation-indexed Treasuries forecast consumer prices will rise an average 1.33% in the next five years. Fed funds futures show a 32% probability of a September rate increase and 62% by year-end. A second increase isn’t priced in until October 2018.
Even with the BOJ and ECB easing to fight deflation, it’s hard to see this as a positive backdrop.”

Oh, ok. So you want to blow out the long end? You want to bear steepen? Really? We would suggest that’s a horrible idea.

Because do you know what happens next? JGB and bund yield blow out. And. You. Do. Not. Want. That.


Hedge Problem: US Bonds Aren’t As Attractive As They Seem

in Credit/Debt by

One of the reasons Main Street got blindsided in 2008 was Wall Street’s penchant for obfuscation. When you, as a retail investor, hear something like “collateralized debt obligation,” you have a very understandable tendency to tune out. It’s like Stephen Colbert once famously said: “You’re-a-bore is what someone says when you mention EURIBOR.”

But the thing you need to understand is that these supposedly esoteric, complex concepts and instruments are actually far simpler to understand that your average corporate balance sheet (especially in this era of non-GAAP crap):


(Chart: Morgan Stanley)

Some of the more interesting commentary we read today came (characteristically) from Bloomberg’s Richard Breslow. Here’s an excerpt:

“But whether it was the ECB waiting, Fed speakers pressing or, more likely, 30-year JGBs “backing up” to 50bps, global bonds decided some caution was in order. And in the world of extraordinary monetary “largesse,” bonds are the global investing bellwether. Everything else follows their lead. Lo and behold, we learn that Japanese investors last week were sellers of foreign bonds — in size. Turns out that with swap rates such as they are, U.S. yields just aren’t as attractive as they look at first blush.

So that’s important. It sounds complicated but it’s not. Think about it. You’re literally paying Tokyo to loan them money (negative yields on JGBs), so why not just buy US Treasurys which, while the yields are admittedly paltry, at least they are above zero. Well, that makes sense, but you want to currency hedge your position right? Because who knows what USDJPY is going to do going forward. Well, as we’ve documented elsewhere, the global dollar funding crunch has actually driven up the cost of FX hedging to the point where the trade is no longer worth it. Have a look:


(Chart: Deutsche Bank)

That’s actually an extremely important chart. Basically, Japanese investors can no longer pick up any yield versus Japanese govies thanks to the rising cost of hedging the USD. Why should you care? Well because what that means is they’ll have to do one of two things: 1) take more duration risk, or 2) move down the quality ladder.

Pay attention to these dynamics, because these are the kinds of supposedly “obscure” things that drive flows.

Demographic Debacle

in Debt by

There are major concerns across markets about demographics. Not the least of which emanate from Japan. But do you know how you “correct” the problem? Well by expanding credit of course. From Citi’s Matt King:



Debt folks. Debt.

That’s the solution to everything.

But what happens to that dynamic when lenders are getting negative yields?

Good question, right?

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