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Bank of Japan Seeks to End Stimulus, Currency Market In Disbelief

  • Written by Syndicated Publisher No Comments Comments
    May 30, 2014

    The bond markets and currency markets are out of sync with equity markets and widely-touted economic projections that things are getting better. 

    Yesterday I commented US Economy Poised to Accelerate? Bond Market in DisbeliefToday the spotlight is on Japan.Bank of Japan Confident

    Reuters reports Bank of Japan, more confident about recovery, quietly eyes stimulus exit.

    The Bank of Japan has begun shifting its focus from supporting growth to ways of phasing out its massive stimulus, taking first tentative steps towards a potentially momentous move for the world economy.

    Current and former central bankers familiar with internal discussions say an informal debate is under way on how to prepare for an exit from the BOJ’s 13-month-old “quantitative and qualitative monetary easing.”

    The stimulus is a centerpiece of Prime Minister Shinzo Abe’s campaign to end two decades of deflation and fitful growth, and BOJ Governor Haruhiko Kuroda has vowed to keep cheap cash flowing until his 2 percent inflation target is in plain sight.

    But with inflation now past the half-way mark and signs that the economy has weathered last month’s sales tax increase, Japanese central bankers are already thinking about the next chapter.

    Whereas weeks or months ago that debate would center on the potential need for more easing, now there is a strong sense within the BOJ board that the stimulus so far has worked well and the next step, albeit distant, could be policy tightening, not further easing.

    Deputy Governor Kikuo Iwata underscored that shift, reminding markets that the 2 percent inflation goal worked both ways.

    Yen vs. US Dollar Weekly

    If the Japanese economy was poised to strengthen, the Yen should rally along with yields on Japanese bonds. Neither is happening.

    Why not?

    I believe the currency and bond markets have the situation correct and the economic consensus about future growth is wrong.

    Images: Flickr (licence attribution)

    About The Author

    Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.  Visit Sitka Pacific’s Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

    You are currently viewing my global economics blog which typically has commentary every day of the week. I am also a contributing “professor” on Minyanville, a community site focused on economic and financial education.  Every Thursday I do a podcast on HoweStreet and on an ad hoc basis contribute to many other sites.

    When not writing about stocks or the economy I spend a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com.
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