(OT) Bank of Japan's Governor Says Wages in Japan Are Rising

Uh... rising?

In this post-Lehman "New Normal" world, particularly in the so-called developed nations of the US, Japan and EU, 22 straight months of wage decline must mean wages are rising.

Governor Haruhiko Kuroda of Bank of Japan had an exclusive interview with the US's financial news channel CNBC while attending the Asian Development Bank meeting in Kazakhstan.

From the video in the CNBC article (5/4/2014):

Kuroda starts out by declaring that economists have been consistently wrong about Japan in the past twelve months because they have failed to predict the inflation that is actually happening.

Then, at about 1:23,

Susan Li, CNBC: Wages have been down for 22 straight months, and it's not keeping up with the inflation ...

Kuroda: (cutting the interviewer off) But that, that is not true. Actually, wages have started to rise. We expect uh nominal wages uh continue to rise, coupled with improving employment situation, means that employer's (sic) income would increase by about 3%.

I am sure Mr. Kuroda meant "employee". For sure, Japan's employers, particularly large multinationals, are raking in huge revenues, partly thanks to cheapened yen.

Then Kuroda prattles on about employment situation, and Ms. Li drops the topic of wages completely.

So are wages in Japan rising, or falling, in the reality-based world?

22 straight months of decline, from Zero Hedge (4/29/2014):

"monthly wages excluding overtime and bonus payments fell 0.4 percent in March from a year earlier (the biggest drop in 2014), a series of declines which has now stretched to 22 consecutive months."

Reading Japan's Nikkei Shinbun (4/30/2014), you wouldn't know that unless you pay attention to detail. Governor Kuroda wants you to focus on the positive message of "wage increase". Clearly, the "wages" Mr. Kuroda is talking about are wages including overtime pay and bonus:

３月の給与総額、３カ月ぶり増加　残業代増える

Total wages in March increased for the first time in three months, overtime pay increased

厚生労働省が30日まとめた３月の毎月勤労統計調査（速報）によると、残業代を含む給与総額の平均は27万6740円と前年同月に比べて0.7％増えた。増加は３カ月ぶりで、伸び率は２年ぶりの大きさ。消費増税前の駆け込み需要で残業代が増えたため。一方、基本給にあたる所定内給与は0.4％減の24万656円と22カ月連続で前年を下回った。

According to the monthly labor statistics (preliminary) announced by Ministry of Health, Welfare and Labor on April 30, the average total wages including overtime increased by 0.7% in March compared to a year ago to 276,740 yen [US$2760] . It was the first increase in three months, and the rate of increase was the biggest in two years. The increase was due to the increase in overtime pay, to meet the last-minute demand [for goods and services] before the sales tax increase [on April 1, 2014]. On the other hand, fixed wages, or base wages dropped by 0.4% to 240,656 yen [US$2400], decline of 22 consecutive months.

As far as I know, when comparing wages over time or across different regions/countries, you don't include overtime pay, benefits, or one-time pay like bonuses. But that's not Kuroda BOJ, apparently.

Pick the data that justifies your position, conviction or belief, even if you can't objectively compare that data with anything else. That seems totally normal in post-Obokata Japan. (Maybe Ms. Obokata should have been an economist or a banker, like Mr. Kuroda. Or politician, like Mr. Shinzo "contaminated water at Fukushima I NPP totally controlled" Abe.)

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Bank of Japan Governor Kuroda: Japanese Economy Will Grow with Sales Tax Hike

No wonder the Japan's stock market decided to tank yesterday.

Here's what BOJ Governor Haruhiko Kuroda said in the press conference after the BOJ meeting on August 8, 2013, as reported by Nikkei Shinbun (8/8/2013):

日銀総裁、消費増税と脱デフレ「両立する」

BOJ Governor says sales tax increase and growth out of deflation "will coexist"

日銀の黒田東彦総裁は８日の金融政策決定会合後の記者会見で、消費税率の引き上げとデフレ脱却との関係について「両立すると思っている」と強調した。「経済・物価情勢の展望（展望リポート）」で示した見通しを例に挙げたうえで、消費増税後の日本の景気について「前向きな循環は維持され、潜在成長率を上回る成長を続ける可能性が高い」との認識を示した。

During the press conference after the monetary policy meeting on August 8, Bank of Japan Governor Haruhiko Kuroda emphasized that he believed raising the sales tax rate and growing the economy out of deflation "will coexist". He cited the report "Outlook for economy and consumer prices", and commented on the Japanese economy after the sales tax hike, saying "It is highly likely that forward-looking loop will be maintained, and [the economy] will grow at a rate surpassing the potential growth rate."

I have no idea what "forward-looking", or positive, loop he is talking about when the sales tax is raised from the current 5% (it triggered the recession when it was introduced) to 8% come April 2014 (start of fiscal 2014). But I can guess from other remarks he made in the press conference. The positive loop for the economy is that people will hurry up and buy stuff before the new sales tax rate kicks in in January, boosting the economy during the run-up to the tax hike. Then after the hike, there will be tax breaks for corporations who will no doubt boost production and employment.

Sure. A pie in the sky.

What's more likely, in my humble opinion, is that consumers will stop spending, and corporations won't invest because there is no demand.

As far as I know, there is no offsetting reduction in personal income tax for the residents. On the contrary, personal income tax rates have actually been raised, supposedly to pay for the "recovery" and "reconstruction" of the disaster-affected Tohoku. The government under DPJ's Noda got away with introducing the carbon tax, further raising the cost of importing oil and gas.

Here's how he looked as he delivered the above, literally incredible remark, courtesy of Nikkei Shinbun:

Is he lying or is he lying?

In addition to normalcy bias, adoration of people with higher education and degrees from the nation's most prominent universities is Japan's hallmark. Most people will go, "Oh OK, if Mr. Kuroda says so. After all, he is a Tokyo University graduate, and he was a career bureaucrat at one of the most elite ministries (Ministry of Finance) who passed such a difficult entrance examination to become one!"

Nikkei's article has a short video clip of Kuroda answering questions from the reporters. One of the topics not mentioned in the article above is about the fiscal policy of the national government and its effect on monetary policy by BOJ.

Again, Kuroda said things as if no one but him knew what he was talking about.

He said,

"If the fiscal discipline becomes weak, it may affect the monetary policy..."

Fiscal discipline? Weak? Japan's fiscal discipline has been gone for at least two decades. How else is the national debt at 240% of GDP?

61% of Japan's GDP is from consumer spending, while 13% is from capital investment. Abe and Kuroda firmly believe by giving subsidies, incentives including free money printed by BOJ to large corporation to make capital investment the economy will expand. Does that make sense? No. Just ask China.

Japanese newspapers and NHK have been quoting the IMF report in the past few days in which IMF supposedly insists that Japan stick with the schedule of raising sales tax, possibly all the way up to 15%. Only Bloomberg Japan mentioned that there were several IMF commissioners who expressed concern that the sales tax hike would negatively affect the Japanese economy.

Bloomberg Japan's article (also in English, by Bloomberg reporter in Tokyo) also mentions IMF's fear that should the so-called "Abenomics" be imperfect, Japan's reliance on fiscal and monetary stimulus for growth may be a heavy burden to the rest of the world.

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Bank of Japan's Kuroda Disappoints Again, Nikkei Drops More than 400Pts from Day's High

Bank of Japan's Governor Haruhiko Kuroda firmly believes what he cared to utter in April this year (that he will buy 7 trillion yen worth of Japanese Government Bonds and other securities per month) should be good enough for anyone, and he and his company stuck to the line in the BOJ meeting on August 8, 2013.

The stock market, infinitely wiser, even if in its heavily manipulated state, than Mr. Kuroda, heads south in the afternoon market. It ended the day at 13,605, down 219 from yesterday's close and reversing the 200 point gain at one point. The forex market reacted similarly, pushing yen higher against US dollar on expectation that there will be no added easing announced by Kuroda.

Economists and analysts, on the other hand, seem to have learned not to expect much from Kuroda any more. Kuroda has said what they expected him to say. Or rather, Kuroda has said what they say they expected him to say.

Here's what Kuroda and company did in today's meeting, according to Bloomberg News (8/7/2013):

Bank of Japan Refrains From Adding to Unprecedented Stimulus

The Bank of Japan refrained from adding to unprecedented monetary stimulus after consumer prices rose in June and a recovery in the world’s third-biggest economy maintained momentum.

Governor Haruhiko Kuroda’s board stuck with an April pledge to expand the monetary base by 60 trillion yen to 70 trillion yen ($723 billion) per year, a statement released in Tokyo today showed. All 26 economists in a Bloomberg News survey predicted the decision.

...The bigger focus may be Kuroda’s press briefing today and any comments he makes on the sales tax, Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo and a former BOJ official, said before the decision.

(Full article at the link)

And did Kuroda say anything about the sales tax?

If this intraday chart of Nikkei on August 8, 2013, if he did say something, he must have said the sales tax hike should be carried out as scheduled, and that there would be no effect on the growth of the Japanese economy (which he already said about a week ago).

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Idio(syncra)tic Japanese Stock Market: Return of PKO (Price Keeping Operation) to Support Abe/Kuroda Agendas

Both "growth strategies" of Prime Minister Shinzo Abe and "QE from different time-space dimension" of Bank of Japan Governor Haruhiko Kuroda hinge on the Nikkei stock index to keep rising, signaling the "wealth effect" to the populace most of whom are yet to see any tangible benefit of either Abe's or Kuroda's strategies.

So, as part of "doing whatever it takes" (which even Bank of International Settlement says is so passe), PKO, or price-keeping operation, on the Nikkei index seems to have returned.

Economic journalist Takehiko Nishino wrote in Nikkei Shinbun on 6/26/2013 the following (my summary of original Japanese):

The Nikkei Index on June 21, 2013 started at -311 yen following the rout in the US stock market, with Dow Jones Industrial plunging 353 points. However, in the afternoon market, Nikkei, led by strong, intermittent buys in the futures market, reversed to positive, and ended the day up 215 yen. As it was happening, traders were puzzled by the scale and speed of the index recovery.

Rumor had it at first that those speculative buys in the futures market were from foreign investment banks, but it turned out that foreign investment banks like ABN Amro, Newedge Group, Barklays, UBS, Morgan Stanley were net sellers of the futures.

So who did the buying? Japanese investment banks, particularly Nomura Securities. The buying and selling of the futures were totally out of proportion. So what was it?

Mr. Nishino thinks it was the good old "PKO", price-keeping operation, resurrected. PKO was done in the 2000s when the Japanese stock market was going nowhere, to inject some fizz in the market and support the market. It worked like this:

Japanese investment banks and institutional investors routed their orders through foreign investment banks or through their overseas offices to make the orders look like they were from foreign investors.

After it was revealed they were not foreign investors, they were euphemistically called "foreign investors with dark eyes" (i.e. Japanese). Also, the national government directed public fund (public pensions, postal savings) to invest in the stock market to support the market. [That was one of the worst-kept secret among traders.]

[One of the PKO was done by then-Prime Minister Taro Aso, current vice prime minister and minister of finance, in October 2008 when Nikkei tanked to post-bubble low of 6994 yen. Aso directed the Japanese investment banks and public pensions to prop up the market at all cost (literally), and Nikkei ended the year at 8859.]

So, why did this PKO suddenly reappear on June 21, 2013, with Japanese investment banks buying up massive amount of Nikkei futures?

Mr. Nishino thinks there are two factors. Japanese investment banks themselves didn't want Nikkei to tank at this point, for their own sake. They want the "Abenomics" market that keeps going up no matter what. And Prime Minister Abe himself didn't want Nikkei to tank, right before the Tokyo Metropolitan Assembly election, a precursor to the Upper House election in July. So far, the rising stock market is about the only "positive" results of so-called "Abenomics", and if the stock market tanks it will be considered failure of Abe's overall policies.

So what to do? Buy Nikkei futures at all cost.

And today, Nikkei ended at 13,213, up 379 from yesterday's close. With PKO's help, I'm positive it will regain 50-day moving average (13,788) sometime next week (if not Friday).　BIS be damned. For most Japanese from Prime Minister on down, the stock market is a true reflection of the economy on Main Street.

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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)

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PM Abe's Chief Cabinet Secretary Stating the Obvious: "When Yen Was Higher, Yen Was Much Higher"

Thursday humor to tide you over to Fabulous Friday...

From Chief Cabinet Secretary Yoshihide Suga, on the second largest plunge of Nikkei this year and Japanese yen melting up past 94 yen (for a moment), according to Reuters Japan (6/13/2013; part):

「円高の際には７６円までいったのだから。現在は１ドル９４円。安倍政権の発足時に比べたら、株価は４割くらい上がっており、為替もきょうは円高に振れたとはいえ、１５円くらい円安になっている。そうした動きは一喜一憂することではない。株価は必ず調整局面があるのだし、実体経済や先行指標は間違いなくよい方向にあり、自信をもって政策を推進していきたい」

"When yen was higher, it went to 76 yen. Right now it is 94 yen against US dollar. Share prices are up by 40% now, compared to when the Abe administration came into power, and yen is 15 yen cheaper now, even though it was higher today. Such movements are nothing to worry about. Share prices adjust, real economy and leading indicators are definitely on the mend. We would like to execute our policies with confidence."

As if real economy (aka "main street") matters to algo bots and macro investors. In case you think like Suga, it doesn't. In addition, Mr. Suga seems to already and conveniently forgot that one of the leading indicators for private capex (capital expenditure), machine order, plummeted by 8.8% in April.

Close your eyes and click your heels three times...

When Reuters Japan initially reported the news, Suga's comment was extremely succinctly summarized, as:

「円高の時は、もっと円が高かった」

"When yen was higher, yen was much higher."

Exactly, Mr. Suga.

Suga also quoted Bank of Japan Governor Kuroda telling the Abe cabinet that the stock plunge is just a normal profit taking.

Exactly, Mr. Kuroda. It's also called "bear market".

Congratulations by the way for having the first major stock index in the world that has plunged down to a bear market territory (i.e. 20% correction from the top). Japan as the world No.1!

One glimmer of hope for Suga, Kuroda, and Abe, maybe, is that Goldman Sachs, who had recommended long Nikkei September futures in anticipation of BOJ's meeting results on Tuesday, is sticking to the recommendation even after the stop loss was triggered, according to Zero Hedge (6/13/2013):

...Instead, Goldman flagrantly ignores its own stop loss, and continues keeping the muppets in what is now a losing trade, and massively losing if one applied leverage.

The overnight price action in Asia has been extremely volatile, with all major equity bourses deeply in the red. The Nikkei closed more than -6% lower (and the Topix about -5%), with the JPY trading through 93 at one point (last 94.5). These sharp moves have also meant that the Nikkei September future traded through our stop of 12,700... Stay long Nikkei September futures (NKU3), opened at 13,215 on 10 June 2013, with an initial target of 14,500 and a stop on a close below 12,700, currently at 12,400.

Translation: Goldman has quite a bit more NKU3 in inventory to sell to muppets. And muppets, clueless as always, are gladly obliging.

(UPDATE) Goldman apparently exited the trade, according to Zero Hedge.

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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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Bank of Japan's Non-Action Tanks Global Financial Markets

Despite their talk of "global" this and that, "international" this and that, the Abe administration and Kuroda BOJ remain extremely domestic. On top of that, they don't actually have "Plan B" for their respective policies - so-called "Abenomics" for Abe, "Quantitative Easing on a different dimension [as in "Twilight Zone"]" for Kuroda.

Their mode of operation is to keep doing it until it works. Nothing new in Japan, of all places.

Abe's so-called "growth strategy" for the nation of Japan is full of words like "Japan as the number one in the world". Kuroda was supposedly elected as Governor of Bank of Japan because of his supposedly excellent skills in communicating with the participants in the global financial markets.

However, when Bank of Japan commissioners met on June 11, despite the global turmoil in financial markets, particularly the bond markets including their own, caused by their clumsy implementation of endless bond buying, they decided to put a brave face and pretend nothing was amiss. They did nothing, which was not at all what the global financial markets were anticipating.

In driving, the worst and the most dangerous driver is the one who is unpredictable.

From AP (6/11/2013):

Japanese disappointment weighs on global markets

LONDON (AP) — Disappointment that the Bank of Japan did not unveil more measures to boost the economy as well as uncertainty over the course of U.S. monetary policy weighed hard on global markets Tuesday.

There had been expectations that the Bank of Japan, which started a big monetary stimulus this year to get the world's number 3 economy out of a two-decade stagnation, would announce new measures to ease volatility in the Japanese bond market. Instead the bank's policy board merely upgraded its economic assessment.

The disappointment was enough to send Japan's Nikkei stock index down 1.5 percent to close at 13,317.62. However, the retreat was modest in light of the previous day's 4.9 percent advance following an upward revision of first-quarter economic data. In tandem with the fall in equities, the yen made big gains — the dollar was down 2 percent to 96.87 yen.

"The decision to hold steady prompted a sharp jump in the yen, and is also one factor contributing to weakness in global equities," said Nick Bennenbroek, head of currency strategy at Wells Fargo Bank.

In Europe, the FTSE 100 index of leading British shares was down 1.6 percent at 6,298 while Germany's DAX fell 1.7 percent to 8,165. The CAC-40 in France was 1.8 percent lower at 3,793.

In the U.S., the Dow Jones industrial average was down 0.8 percent at 15,114 while the broader S&P 500 index fell 0.9 percent to 1,628.

(Full article at the link)

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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 Bloomberg.com's homepage, chart that plots Nikkei, FTSE, Dow:

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Japan's Nikkei Free-Falling, -1143

(UPDATE) It is ugly in Europe, with Germany's DAX down 223 points (2.62%). US stock futures are ugly, too. Dow futures down 159. Ben's Fed has some work to do before the cash market opens.

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The stock market in Japan is supposedly disliking the contracting Chinese economy and the US Fed comment about "tapering" down the QE4EVA, but I think it's about another botched day in the JGB (Japanese Government Bond) futures market which was halted (yet again) when the price dropped and yield spiked. 10-year JGB's yield hit 1%, almost triple the yield right before the Bank of Japan intervention in early April.

Nikkei is now minus 940...still 5 minutes to trade.

I wonder if Governor Inose now has second thoughts about advancing the Japan Standard Time. He wouldn't want to start the financial day for the entire world with disaster after disaster in Japanese financial markets, would he?

It is now minus 976, one minute to trade...

...and just ended the day with minus 1,143. That's an intraday swing of 1,459 from the high of 15,942, or over 9% swing.

Now their stock market is catching up with the bond market in terms of extreme volatility.

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Bloomberg News: Kuroda's Antics Backfire, as Mortgage Rates and Corporate Lending Rates Go Up in Japan

You will never see an article like that in today's Japan on any paper. How dare you call Governor Haruhiko Kuroda's action a failure? It's all for us, our well-being, our future!

Volatility in Japanese Government Bonds (JGB) that Kuroda has unwittingly introduced in April is causing the investors to demand premium to compensate for the volatility, thus the rates rise. That's not what Kuroda or his boss Prime Minister Abe intended.

Federal Reserve's Ben must be chuckling, and saying under his breath, "Amateurs..."

Bloomberg News (5/7/2013; emphasis is mine):

Kuroda Stimulus Backfires as Mortgage Costs Rise: Japan Credit

By Masaki Kondo, Mariko Ishikawa & Yumi Ikeda

Bank of Japan Governor Haruhiko Kuroda’s stimulus policies are backfiring in the housing market, where mortgage rates are rising even as the central bank floods the financial system with cash.

While 35-year home-loan costs rose one basis point to 1.81 percent this month from an all-time low of 1.8 percent in April, any increase will be undesirable for the BOJ, according to Mizuho Securities Co. Federal Reserve Chairman Ben S. Bernanke’s monetary easing almost halved 30-year U.S. mortgage rates since 2008 to 3.35 percent on May 2.

The BOJ’s April 4 announcement that it would double bond buying to generate 2 percent inflation unleashed the highest government-debt volatility in a decade and pushed 10-year yields up by 4 1/2 basis points. The benchmark lending rate for large corporations, known as the prime rate, increased five basis points from its record low to 1.2 percent on April 10, despite the BOJ’s aim of stoking the economy through cheaper funding.

“It makes little economic sense for rates to decline when the BOJ says it will raise consumer prices,” said Toru Suehiro, a market economist in Tokyo at Mizuho, one of the 24 primary dealers obliged to bid at government debt auctions. “Yields are higher than before the monetary easing to reflect the volatility risk, and lending rates have risen because they are set based on bond yields.”

Volatility, as measured by the gap between the 10-year yield’s daily high and low, jumped to 30 1/2 basis points on April 5, the most since July 2003, after Kuroda unveiled a plan to buy more than 7 trillion yen ($70.7 billion) of Japanese government bonds a month, accounting for more than half of the total amount that the government plans to sell in the market this fiscal year.

“The BOJ’s buying is reducing the liquidity of government bonds, preventing market participants from finding appropriate yield levels,” said Satoshi Okagawa, a senior global-markets analyst in Singapore at Sumitomo Mitsui Banking Corp., a unit of Japan’s second-largest financial group by market value. “That situation will make the market dependent on the BOJ’s purchases just like a morphine addict.”

(Full article at the link)

The US primary dealers wouldn't be able to do without that morphine from the Fed.

4 and a half basis points is 0.045%. What's the big deal, you may ask? Well, if Japan's 10-year bond yield was 0.5% before Kuroda's intervention, it was 9% jump in the yield. That's huge for bonds.

By the way, after breaking just about every financial market with his enormous liquidity, Federal Reserve Chairman Bernanke won't be attending the annual Jackson Hole confab of world's central bankers this year. Rumors is that he won't be seeking the next term.

(If and when SHTF, Kuroda will get the blame, I suppose.)

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Bank of Japan to Use Price Forecasts Themselves as Deflation-Fighting Tool?

That's what Bloomberg News says Goldman Sachs and J.P.Morgan Chase are thinking.

(Or should I say "what they are thinking of telling Kuroda to do"?)

So, BOJ Governor Haruhiko Kuroda will simply declare to the public, "Inflation forecast in fiscal 2015 will be such and such", and people will rush to buy up things now, before the price is supposed to rise according to BOJ, thus creating an actual inflation in which more money chases the same number of goods.

This is more farcical than Ben Bernank's antics.

From Bloomberg News (4/22/2013; emphasis is mine):

BOJ Seen Deploying Price Forecasts as Tool Against Deflation

As the Bank of Japan prepares to boost its inflation forecasts this week, analysts from Goldman Sachs Group Inc. to JPMorgan Chase & Co. say the estimates may themselves be used as a tool for ending deflation.

The BOJ may indicate that its 2 percent inflation target will be reached by spring 2015, the Nikkei newspaper reported April 18. The central bank may upgrade its view on core price gains to at least 1.5 percent for the year ending March 2015, people familiar with officials’ discussions previously told Bloomberg News.

Central bank Governor Haruhiko Kuroda, who this week oversees his second board meeting, says stoking inflation expectations can unlock pent-up demand and spur credit growth by alleviating concern real debt burdens will rise. The BOJ risks losing credibility unless prices stop dropping in coming months, with a key gauge showing a 0.3 percent decline in February and analysts estimating another fall in March.

“It’s a confidence game,” said Masamichi Adachi, senior economist at JPMorgan in Tokyo and a former BOJ official. “The BOJ is trying to use its inflation forecast to convince markets that they can achieve the 2 percent inflation target in two years, even though some market participants may feel this is unrealistic.”

Any forecast for price gains in fiscal 2015 is likely to be 2 percent, matching the central bank’s target, according to five out of six economists in a Bloomberg News survey. The BOJ is yet to indicate whether it will release such a projection.

The highest forecast since the central bank began releasing estimates in 2000 was 1.8 percent for fiscal 2008.

(Full article at the link)

Confidence game. Indeed. As Kuroda has said a number of times, he will do whatever it takes to cause inflation which he calls, along with almost all economists and journalists and politicians in Japan, "price stability". I suppose that can include lying to the public that inflation is coming.

As long as it is for the greater good of actually causing inflation.

Koroda's policies and actions are considered to have been a great success so far by the Japanese public. Financial Times flat-out says it's been a failure.

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Extreme Gold Sell-Off Caused by Extreme Volatility of Japanese Government Bonds?

Gold and silver crashed on no apparent reason whatsoever on Friday, and it continues in Asia on Monday.

After reading the article at Zero Hedge (4/12/2013), at least now it all makes sense to me. Instead of unwinding the JGB positions in the new-normal extreme volatility because of the Bank of Japan meddling, financial institutions are selling other assets to raise cash for margin calls for their JGB holdings. And those assets of choice seem to be gold and silver.

Gold investors can thank Haruhiko Kuroda, the ex-Finance-Ministry-bureaucrat Governor of Bank of Japan, for doing everything he can to create inflation which he calls "price stability" (1984, anyone?) for the opportunity to add to their positions at an extremely low price considering the money printing that has been going on for the past 4 years by the central banks in the US and Europe.

Japanese financial media like Nikkei Shinbun is all excited with Kuroda's regime, calling it "different dimension (異次元)", as in Twilight Zone. Indeed.

From Zero Hedge, emphasis is original:

Japanese Bonds vs Gold: Is This Why Commodities Are Selling Off?

Japanese bond volatility appears to have crossed the Rubicon. As we noted here, the Japanese Ministry of Finance warned that a rise in JGB volatility could cause a significant sell-off in JGBs (since banks will be hampered by their VaR models-driven risk limits, which have literally gone off the charts in recent days, and be forced to reduce holdings to meet those risk limits). It seems however, that since the BoJ is set to buy more JGBs than will be issued in the next several years as noted yesterday, that financial institutions are chosing to live with the record vol noted previously, opting to raise cash buffers and liquidity reserves instead of selling bonds in order to meet surging margin demands on their JGB holdings.
 The synchronicity between the price of gold (and other commodities) and the volatility of Japanese bonds makes this risk-driven perspective very clear. This leaves the question, what happens when the Japanese (or in fact global - since front-running the BoJ has been a big winner until a week ago) banks run out of 'other' assets to sell and their VaR models continue to demand more capital in reserve?

Since QE2, gold (and other commodities) have moved in inverted-lockstep with Japanese interest rate implied (and realized) volatility as the JGB margin demands oscillate.

For some reason unknown to mere mortals, Kuroda and his boss Shinzo Abe seem to think they can control everything, achieve just the results they order.

That confidence is definitely not coming from their experience at Fukushima, that's for sure. For that pesky problem that's leaking all-beta water, they are setting up a committee to study the problem so that people, particularly those in Fukushima, are assured, in the fine comical tradition of Sir Humphrey Appleby.

(I actually burst into laughter when I read the news about this committee. Every single word of the news I have heard and watched in episodes of Yes (Prime) Minster...)

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(UPDATED) Bank of Japan to Buy 7 Trillion Yen JGBs Per Month, Double Monetary Base in 2 Years to Cause 2% Inflation

(UPDATE) Bank of Japan's English press release on their money-printing exercise: http://www.boj.or.jp/en/announcements/release_2013/k130404a.pdf

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Which they, and the politicians and economists in Japan (as in elsewhere), call "price stabilization". (Newspeak, anyone?)

Bank of Japan goes full retard, as Zero Hedge would say. BOJ under Mr. Kuroda, former career bureaucrat at the powerful Ministry of Finance, will:

• Buy 7 trillion yen (US$75 billion) worth of long-dated Japanese government bonds (JGBs) every month; and

• Double the monetary base in two years.

The Nikkei goes full retard, too:



An article earlier today at CNBC asked, "How closely is Kuroda emulating Bernanke?" Now you know. Extremely close.

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Bank of Japan Governor Candidate Kuroda May Want to Buy Interest Rate Swaps and Other Derivatives as Part of QE

Boldly go where even the Ben Bernank hasn't gone before. The Fed chairman bought CDS (credit-default swaps) and interest rate swaps of Bear Stearns in the emergency rescue of the company in 2008, but not as part of ongoing quantitative easing.

A couple of laps behind in the QE track, Mr. Kuroda and Bank of Japan will overcompensate. Mr. Kuroda, by mentioning the financial derivatives at all, is signaling his intention to use them, I believe.

Multibillionaire investor Warren Buffett once called the derivatives "weapons of mass financial destruction". But then, Buffett was later seen writing put options on his railroad company shares which went into money. Oops.

Big bang for the money is irresistible even to the wealthy investors, I suppose. For Mr. Kuroda, it's not even his money anyway. What's there to lose?

From Nikkei Quick News (3/11/2013; part):

黒田氏、金利スワップの活用「十分検討したい」

Mr. Kuroda "will fully consider" the use of interest rate swaps

日銀総裁候補の黒田東彦アジア開発銀行総裁は11日午前、参院議院運営委員会の所信聴取で金利スワップの活用で金利低下を促す政策について「具体的にスワップやその他デリバティブ（金融派生商品）市場に出て行くのがよいのかよくないのか、いろいろな議論のあるところ」と述べた。そのうえで「十分検討させていただきたい」と付け加えた。

Haruhiko Kuroda, president of the Asian Development Bank and candidate for the Bank of Japan governor, said in the hearing in the Upper House Steering Committee in the morning of March 11 regarding the policy to induce lower interest rate using interest rate swaps, "There is much discussion about whether it is good to use swaps and other financial derivatives or not." He then added, "I would like you to let me fully consider the matter."

Interest rate swaps swap the cash flow of different interest rates - usually one is fixed and the other is floating-rate.

Several US municipalities have lost badly on the interest rate swap deals with Wall Street banks. The most famous case is Jefferson County, Alabama, which went bankrupt over the costly sewer plant project gone bad, partly thanks to the interest rate swaps that ended up costing the county much more when Lehman Brothers collapsed and the entire financial system almost collapsed in the fall of 2008.

Unlike Jefferson County, Bank of Japan, which is 55% owned by the national government, will not go bankrupt, as Mr. Kuroda would simply print money to replenish whatever he loses to the bankers.

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