Thursday, May 23, 2013

Nikkei, JGB Double-Whammy: "Please Do Not Worry..."

Another masterpiece from williambanzai7 at Zero Hedge. Click to enlarge, for full glory.

Haruhiko Kuroda, governor of Bank of Japan, had just repeated his mantra at a press conference on May 22, one day before the Nikkei collapsed over 1,000 points, that (according to Nikkei Shinbun 5/22/2013 article):

  • Long rate is rising because the rates in Europe and the US are rising [Let's blame others, that's the Japanese way]; and

  • BOJ's purchase of JGB compresses the risk premium, and the effect will get stronger as BOJ buys more [Let's flat-out lie, until people actually believe it]

  • He doesn't expect the long rate to jump, under the rate-lowering pressure from quantitative and qualitative easing [And let's lie some more..]

BOJ's purchase of JGB since early April has been nothing but disaster, with risk premium widening. The 10-year bond yield dropped to 0.315% on April 5, 2013, the day after Kuroda announced a new and improved quantitative easing of 7 trillion yen per month. The 10-year yield was 1% on May 23, 2013, 200% jump from the low on April 5.

Some "compression", Mr. Kuroda. Maybe it's another BOJ Newspeak, where "inflation" is "price stability". "Expansion" therefore must be "compression".

Yesterday's Nikkei fall started right after Kuroda's BOJ injected 2.8 trillion yen into the bond market to stabilize the (again) extremely volatile market as the bond futures trading was halted.

So what's the official excuse for that fall? As far as the semi-official story in Nikkei Shinbun (5/24/2013) goes, the consensus views are:

  • The correction has nothing to do with the (economic) fundamentals [which they call "fandamentaruzu" in katakana transliteration to disguise what it actually means];

  • It is just profit-taking, in a stock market that has risen 80% since November 2012 [So they do think the market that rose 80% in 6 months reflects economic fundamentals of Japan. Sure.];

  • [And sure enough,] Japanese economy is on a solid footing;

  • The Nikkei level after the fall on May 23 is just about right, even a little bit cheaper; and

  • BTFD (Buy The Failed Dip), with "animal spirit".

As you see, all is well. Keep repeating the lies and soon everyone will believe them and make the lies come true. That's what the Japanese government has been effectively doing, since March 11, 2011 in particular.

The magnitude of the Nikkei fall is unmistakable, though. From's homepage, chart that plots Nikkei, FTSE, Dow:


Maju said...

Exactly: mainstream media are blaming Chinese and European long-term problems but that hardly looks a realistic explanation when only the Nikkei collapsed today. I would agree that this looks an expression of Japan-specific "unconfessed" problems, which have affected by "contagion" other markets, but only to much lesser extent.

Actually if you look at European and US markets: their biggest fall was right at the beginning, sign of unease because of the Japanese collapse. The FTSE stayed almost invariable since then, while the Dow Jones quickly recovered almost all.

Anonymous said...

Well, where do we believe a fair level for Nikkei would be? It can't be 8,000 (December) and 16,000 (two days ago) at the same time.

Anonymous said...

Fair? What does being fair have anything to do with anything any more? Fair to who? If it is to Kuroda, I'm sure the fair level is Nikkei back to 40,000. It was only 23 years ago. It's only fair that Japan be allowed another stupendous bubble.

Anonymous said...

It's the abenomy, stupid!

Darth 3.11 said...

Where did that Photoshopped genius picture come from? Reminds me of the Star Trek Enterprise plowing into planet Earth.

Thanks for your insight and acerbic commentary.

Anonymous said...

@6:33 Fair in terms of price to earnings ratio, for example...

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