The Bank Of Japan (#BOJ) attempted to have its cake and eat it too, again, but this time, they didn’t have the luxury to do so anymore. The #BOJ had to decide which one to save between Japan’s economy and the global #stocks bubble, as we discussed last week (article here); ultimately, they chose the latter. Hold on a second, didn’t they announce they will stop buying #stocks ETFs and J-REITs going forward? Yes, they did, but they also announced the following:
- $JGB asset purchases will continue at the same volumes as before
- The end of Yield Curve Control, but in case of a rapid increase in yields, they will increase the volume of $JGB purchases to control it
- They will provide loans to banks to continue stimulating lending
Going through the #BOJ statement was like reading the essay of someone with severe personality issues, clearly schizophrenic, who at times didn’t have any clue about the meaning and consequences of his words. Let’s take a look at some examples:
1 – “At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan assessed the virtuous cycle between wages and prices, and judged it came in sight that the price stability target of 2 percent would be achieved in a sustainable and stable manner toward the end of the projection period of the January 2024 Outlook Report.”
This is literally the very first sentence of the statement, let’s see what they say next.
2 – “The Bank considers that the policy framework of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control and the negative interest rate policy to date have fulfilled their roles.”
Ok, that makes sense so far, but a few lines below…
3 – “Given the current outlook for economic activity and prices, the Bank anticipates that accommodative financial conditions will be maintained for the time being.”
Please do me a favor now. For the remainder of the article, play this Britney Spears song in the background: “Oops!… I did it Again.”
4 – The second part of the statement is even more comical, with them effectively describing a dangerously inflationary wages-price spiral but calling it a “virtuous cycle between wages and prices.”
Let me help you visualize what the #BOJ has been doing here:
1 – Mr. BOJ first prints a ton of $JPY through the years, but no one wants to buy Japan’s Zombie #stocks, so they carry trade that money abroad (hence Japan pays the cost but other economies reap the benefit).
2 – Then Mr. BOJ starts printing $JPY and uses it to buy those Zombie #stocks with the illusion free liquidity could resuscitate them. At some point, someone must have explained to them that the money they were spending to buy #stocks in the secondary market wasn’t really going into those zombie companies’ pockets, but was exit liquidity for existing shareholders and good business for banks and ETF asset managers.
3 – At this moment, the BOJ starts printing $JPY and puts it directly into the pockets of (Zombie as well) banks, asking them to lend to Zombie companies. What do you think zombie banks did with that money? They had to save themselves first, and surely a way to do it wasn’t lending to companies that had a very high chance not to pay back. So what did they do? They kept feeding the $JPY carry trade “assembly line,” in many cases becoming a big investor player themselves.
4 – This is when the #BOJ had a great idea – printing so many $JPY to exhaust everyone’s appetite for foreign investments so they would ultimately turn back and look at what they can do with what the Japan economy can offer as opportunities.
5 – Ultimately, this “strategy” pays off with the Nikkei coming back to 1989 all-time highs, although that has been achieved with an enormous waste of resources and accumulating such an amount of debt (263% Debt/GDP in Japan) that it is so obviously impossible to repay for many generations.
After reading this, do you now understand why the BOJ removing direct #stocks purchases, after they swallowed a huge chunk of the market already, is just a drop in the ocean? An ocean where they started pouring in even more water than the one they took out, as you can easily understand linking their policies with the respective part of the metaphoric image of the BOJ food chain we just visualized moments ago.
At this point, I hope it is very clear to everyone why the $JPY started depreciating fast and #stocks celebrate the #BOJ decision across the world. Celebrations that, reasonably, are nowhere to be seen in Japan…
Previous articles I wrote on Japan are here in case you want to have a deep dive into this mess and understand in more detail the implications for #stocks, FX, and economies in other countries.
$JPY CARRY TRADE – THE BIGGEST FINANCIAL TICKING TIME BOMB OF ALL?
SOMEONE SOMEWHERE HAS TO PAY A HIGH PRICE FOR THE BANK OF JAPAN’S INCOMPETENCE
GET READY FOR THE LAST BANK OF JAPAN “FREAK SHOW” OF 2023
JAPAN END GAME – A DEEPLY DEVALUED $JPY AND A WORTHLESS #NIKKEI