Loading ...BoJ Mouthpiece Confirms Historic End Of Negative Rates Next Week, 1st Hike In 17 Years
For the past few weeks we have diligently reported on the fact that The Bank of Japan (BoJ) has been foaming the runway for a dramatic shift in its monetary policy, and today we get the final confirmation from notorious establishment ‘mouthpiece’ Nikkei news, stating that the central bank is expected to end its negative interest rates when its policy board meets on Monday and Tuesday.
Notably, amid this constant stream of front-running and warning, Yen has been falling (contrary to what would be expected from a hawkish shift)…Is this yen-selling may be the calm before the face-ripping ‘buy the news’ strength? Or is it a sign of investor angst over the impact on a euphoric stock market of positive interest rates and a central bank that is no longer (even be it marginally) at your back?
IMO, this is really big deal. How big remains to be seen.
It removes a major source of cheap and riskless borrowing underpinning the yen carry trade (and perhaps thereby, the Everything Bubble). Borrow in yen at zero rates, all while the cost of paying back yen goes steadily down. That would now be over.
Is this THE PIN?
Agree. That is why they have been slow walking this for close to a year with all the baby steps and talking about talking about when they will actually do it. Much like the FED slow walking rate cuts. Both are all about mitigating as much as possible the potential for a sharp drop in the US dollar. Which should resume it’s downward move next week.
There was a superb financial analyst named David Hale, who used to mail out weeklies from his Chicago office. He was with Kemper Financial. I still have his work filed away, but not where I’m at.
In any event, he argued that the Plaza Accords were designed to take pressure off the strong dollar (it was nice being in Europe for an extended bit in 1985). Well, it worked but it morphed into a yen nosedive and then the Japanese Bubble, that finally popped in 1990. I was in Sydney in 1989/90 on a diving trip, and connected with a college friend working for Bank ANZ at the time. Told him “this was it”. It was, but only for Japan.
BOJ started QE sometime after, paving the way for Bernanke’s own printing press when it was time for the Japanese to take a break.
Question I’m asking now … is the $ Carry Trade Next in Line? as we turn Japanese (again). Its all different now, so I doubt it. But I’m looking for signs the big US banks turn outward again.