Friday, June 14, 2013

CNBC: Is an Overconfident BOJ to Blame for Market Woes? Is BOJ a Market Virus?

(My personal answers are yes and yes.)

Political and financial elites full of themselves rule Japan, so what else can you expect?

From CNBC (6/13/2013; emphasis is mine):

Is an Overconfident BOJ to Blame for Market Woes?

By: Ansuya Harjani, Assistant Producer, CNBC Asia

Since stunning the markets with unprecedented monetary easing in April, the Bank of Japan has taken a back seat, failing to offer solace to investors that have been rattled by violent swings in the country's bond and equity markets.

According to Kathy Lien, managing director, BK Asset Management, the central bank's "overconfidence" is to blame for the instability plaguing the market.

"They did nothing because they were stubborn and overconfident that their policies were enough to stabilize markets and the markets said no," Lien told CNBC Asia's "Squawk Box" on Friday.

"This is Japan's own doing, they had the opportunity to provide markets with a small dose of stimulus in the form of increasing asset purchases or even the maturity on fund supply operations and they did nothing," she added.

Lien was referring to the BOJ's meeting this week when the central bank failed to announce additional measures like increasing the maturity on its fixed-rate loan facility to two years from one year.

Prime Minister Shinzo Abe's recent announcement of his longer term growth strategy which fell short of expectations, coupled with the disappointment with the BOJ has forced investors to reassess their outlook for the market.

... "They [BOJ] feel their weekly operations are sufficient to calm the [bond] market volatility - The market is saying the BOJ needs to be a little more active than that," she said.

At this point, Japan watchers say it is vital that BOJ Governor Haruhiko Kuroda betters his communication with the market in order to restore investor confidence.

It's a failure to communicate. For example, the governor of BOJ saying 'I think we've done enough' is the wrong thing to say. The correct thing to say is that 'There is no limit to what we are prepared to do'. The psychology is really important with this," said Nicholas Smith, Japan strategist at CLSA.

In April, Kuroda said the Bank of Japan's plans to double the monetary base would be enough to achieve its 2 percent inflation goal, noting that the central bank has taken all the "necessary" and "possible" measures.

A contrast from European Central Bank Chief Mario Draghi who pledged to do"whatever it takes" to save the euro zone last year.

With investors on edge in the face of uncertainty over when the Federal Reserve will begin scaling back its bond buying program, it has become increasingly important for major central banks to clearly communicate their intentions, said strategists.

David Kotok, chief investment officer, Cumberland Advisors, agrees, noting that recent havoc in global markets is largely a result of poor communication by both Kuroda and Bernanke.

"You had a failure to communicate in two central banks at the same time - two of the G-4 botched it up. Bernanke did - he sent a mixed message and stirred a pot. The BOJ has done the same," he said.

(Full article at the link)


VyseLegendaire said...

I'll venture to guess that nobody questioned whether it was a psychotic notion that central bankers should be centrally planning the entire global economy?

Anonymous said...

Political and financial elites full of themselves rule everywhere. And the peons love it!

Anonymous said...

I'll venture to say that it is a psychotic notion than banks can lend money they do not have. Not to mention the ability to sell (short) something they do not have.
It is a psychotic notion that paper (cash, stocks, bonds) can wreck havoc in the lives of millions of people.


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