Japan's Nikkei Down More Than 600 Pts, as World Bank Fears Withdrawal of Monetary Stimulus Would Harm Emerging Markets

(UPDATE 2) Nikkei ended down 843 to 12,445. Chief Cabinet Secretary Yoshihide Suga says, "I will not comment on the stock market's moves, but Japanese economy is steadily growing."

Uh.. Mr. Suga, it doesn't matter. The investors who have been buying Nikkei and shorting yen are "macro" investors (and algo bots) who responds to monetary and fiscal policies of the government and the central bank. When those spectacularly disappoint (like PM Abe did by talking trivial "growth strategies", and Mr. Kuroda did by doing nothing), these investors (and algo bots) sell. Economy on the main street? Who cares.

(UPDATE) Nikkei is now down 760 points, after the news that Prime Minister Shinzo Abe and BOJ's Kuroda met over lunch and talked about financial markets. According to Reuters Japan, Kuroda said to Abe,

「日本経済は順調に回復傾向をたどっており、足取りは次第に力強いものになっている」

"Japan's economy is on a steady path of recovery and it will gradually gather strength" (Reuters English's translation)

「強い決意を持って質的・量的緩和を進め、日本経済を支える」

"With firm resolve, I will execute quantitative and qualitative easing, and support the Japanese economy."

「市場も次第に落ち着いてくる」

"Markets will calm down gradually."

Talk is cheap, Mr. Kuroda.

Between Ben Bernanke and Haruhiko Kuroda, they have managed to wipe out 2.5 trillion dollars of value from the world equity markets since May 22, according to Bloomberg.

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Bank of Japan's non-action (or Klueless Kuroda, if I may) on Tuesday continues to reverberate, as Nikkei tanked nearly 900 points in the morning session, taking the rest of Asia with it. Nikkei is now solidly in a bear market. In the afternoon session, it recovered somewhat, as yen has halted (for now) its steep melt-up against US dollar to 94 yen.

(One of the idiosyncracies of Japan, the numbers in green means they are negative.)

Trigger? It is assumed to be the report by World Bank that withdrawal of monetary stimuli by the world's biggest central banks (the US Federal Reserve, Bank of Japan, among others) may crush the economies in the developing nations by 12%.

The report is being used by traders and bots to exit the stock markets around the world.

A cluster of Hindenburg Omen in the past few weeks has not been for nothing after all, it seems.

From Reuters (6/12/2013; emphasis is mine):

Emerging markets at risk when loose policies end -World Bank

(Reuters) - The World Bank said eventual monetary tightening in advanced economies could crimp growth in emerging markets as interest rates rise, lowering the nations' potential output by as much as 12 percent.

That long-term risk is likely greater than the short-term impact from volatility in emerging market currency and bond markets, as traders try to position themselves for when the U.S. Federal Reserve begins its exit from ultra-loose monetary policies, said Kaushik Basu, the World Bank's chief economist.

Basu was speaking ahead of the launch of the bank's twice-yearly Global Economic Prospects report on Wednesday.

The report argued that the euro area and fiscal uncertainty in the United States are receding as major risks to the global economy. Instead, developing nations have to be on guard against side effects from aggressive monetary expansion in advanced nations.

Japan launched a massive bond-buying program in April to prod the economy out of decades of stagnation, raising fears Japanese investors would flood into emerging markets in search of higher yields and cause overheating.

At the same time, global markets were battered this week as traders tried to read the tea leaves of when the U.S. central bank will decide to start winding down its own stimulus measures.

(Full article at the link)

Bloomberg News (6/12/2013; emphasis is mine) quotes a financial strategist in New Zealand who talks about markets wanting stability and unlimited stimulus at the same time. With BOJ's Kuroda seen not committed to expanding his program after the Tuesday's announcement, all eyes are on the US Fed:

...The global economy will expand 2.2 percent in 2013, the World Bank said yesterday, paring a January forecast of 2.4 percent. The Federal Open Market Committee meets next week after the Bank of Japan this week left its lending program unchanged. Global stocks have plunged 5.2 percent from their May 21 peak this year on speculation the Fed may ease stimulus.

“People are still trying to assess the prospects, likelihood, and timing of tapering from the Federal Reserve,” Chris Green, an Auckland-based strategist at First NZ Capital Ltd., a brokerage and wealth management firm, said. “Markets want stability in the economy but they also want unlimited stimulus. The two can’t continue to exist together.”

(Full article at the link)

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