The Bank of Japan jumps the monetary shark and escalates currency war

...a day after the greatest central bank fraudster of all time, [Alan] Greenspan, 
confessed that QE has not helped the main street economy and jobs, 
the ...BOJ flat-out jumped the monetary shark. 

"The Bank of Japan has stunned the world with fresh blitz of stimulus, pushing quantitative easing to unprecedented levels in a bid to drive down the yen and avert a relapse into deflation.

Artificial stability creates higher levels of systemic instability

The move set off a euphoric rally on global equity markets but the economic consequences may be less benign. ...it threatens a trade shock across Asia in what amounts to currency warfare, risking serious tensions with China and Korea, and tightening the deflationary noose on Europe.

Japan can now sell even more for less
via currency manipulation at the expense of its export driven neighbors.

The Bank of Japan (BoJ) voted by 5:4 in a hotly-contested decision to boost its asset purchases by a quarter to roughly $700bn a year, covering the fiscal deficit and the lion’s share of Japan’s annual budget.

“They are monetizing the national debt even if they don’t want to admit it,” said Marc Ostwald, from Monument Securities.

...[$700] billion per year,
a figure so astonishingly large that it would amount to nearly $3 trillion per year 
if applied to a US scale GDP. 

...It also pledged to triple the amount that will be injected directly into the Tokyo stock market through exchange-traded funds, triggering a 4.3pc surge in the Topix index.

...this was just the beginning of a Ponzi scheme so vast 
that in a matter of seconds its ignited the Japanese stock averages... 

...Japan Inc. is fixing to inject a massive bid into the stock market 
based on a monumental emission of central bank credit created out of thin air. 

So doing, it has generated the greatest front-running frenzy ever recorded.

...the mother of all central bank bubbles now envelopes the entire globe. 

...The finance ministry deems this the minimum level needed to stop a public debt of 245pc of GDP from spinning out of control. The intention is to erode the debt burden through a mix of higher growth and negative real interest rates, a de facto tax on savings.

Via a strategy Alan Greenspan just said doesn't work.

...the BoJ already owns a quarter of all Japanese state bonds, and a third of short-term notes. Its balance sheet will henceforth rise by 1.4pc of GDP each month, three times the previous pace of QE by the US Federal Reserve.

...the Japanese bond market soared on this dumping announcement 
because the JCBs are intended to tumble right into the maws 
of the BOJ’s endless bid. 

Charles Ponzi would have been truly envious...

...there are no rational buyers left in the [Japan's bond] market,
just the BOJ and some robots trading for a few bps of spread on the carry.

...the BOJ has destroyed every last vestige of honest price discovery 
in Japan’s vast bond market. 

...The latest move - already dubbed QE9 – sent the yen plummeting 2.6pc to ¥112 against the dollar, the weakest in seven years. The currency has fallen 40pc against the dollar, euro and Korean won since mid-2012, and 50pc against the Chinese yuan. This is a dramatic shift for a country that remains a global industrial powerhouse, with machinery and car producers that compete toe-to-toe with German and Korean rivals in global markets. “They are going to be screaming across Asia if the yen gets near ¥120 to the dollar,”...

Panasonic said it plans to “reshore” plant from China back to Japan. There are increasing signs that Japanese companies are rethinking the whole logic of hollowing out operations at home to build factories abroad.

Hans Redeker, from Morgan Stanley, said Japan is exporting its deflationary pressures to the rest of Asia. “It is not clear whether other countries can cope with this. There have been a lot of profit warnings in Korea. The entire region is already in difficulties with overcapacity and a serious debt overhang. Dollar-denominated debt has risen exponentially to $2.5 trillion from $300bn in 2005, and credit efficiency is declining,”...

Albert Edwards, from Societe Generale, said Japan is at the epicentre of a currency maelstrom, a replay of the Asian financial crisis from 1997-1998, though this time the region is a much bigger part of the global economy. “China cannot tolerate this kind of shock when it already faces a credit crunch and has suffered a massive loss in competitiveness. Foreign direct investment into China has already turned negative,” he said.

...“If China’s inflation rate falls below 1pc, it will be forced to devalue as well. Currency war was always how this was going to end, and it risks sending a wave of deflation across the world from Asia,” he said.

Or massive competitive devaluations via currency expansion 
leading to hyper inflation in emerging markets
and deflation in the United States and Europe.

As each country resorts to a beggar-thy-neighbour policy in moves akin to the 1930s, deflation is dumped in the lap of any region that is slow to respond - currently the eurozone.

Stephen Lewis, from Monument, said the BoJ’s new stimulus is a disguised way to soak up some $250bn of government bonds that will be coming onto the market as Japan’s $1.2 trillion state pension fund (GPIF) slashes its weighting for domestic bonds to 35pc. This avoids a spike in yields, the nightmare scenario for Japanese officials.

The GPIF will have buy $90bn of Japanese equities and $110bn of foreign stocks to lift its weighting to 25pc for each category. This will be a shot in the arm for global bourses, but also a clever way for Japan to intervene in the currency markets to hold down the yen.

...The world turned a blind eye to the currency effects of Mr Kuroda’s first round of QE...

The risk for premier Shinzo Abe is that further bursts of stimulus may be taken by critics as an admission of failure...

What seems certain is that Japan was sliding headlong into a debt compound trap before Mr Abe launched his “Hail Mary” pass into the unknown.


...Japan is an old age colony which is heading for bankruptcy. 

...it is still borrowing 40 cents on every dollar it spends.

...50% of [the pension fund's] $1.8 trillion portfolio will flow into world stock markets.  On top of that—the BOJ will pile on too—-tripling its annual purchase of ETFs and other equity securities. 

...the point of the whole enterprise explains why the world economy is in such extreme danger. 

...all the world’s central banks are beating a path toward the same [goal of kicking the can].

[Insert Frog in a slowly temperature rising pan metaphor here.]

The source of America's record wealth inequality = Central Bank Money Printing


"BOJ Stands Ready to Buy Every New Bond Abe’s Government Issues" = Ponzi Scheme


Fake, artificially high financial markets, top right of the chart; Fed Speak = Orwellianland


"How much do central banks need to inject to keep the stock market from crashing?


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