BoJ: now, there's one central bank more ludicrous than the Fed

There has not been enough attention paid to the BoJ of late in my opinion. 

Forget about the Fed, that is old news, yet the market only seems to want to focus on that and when the Fed are going to hike rates by a whole 0.25 point. So what if they do?! 

It doesn't make a blind bit of difference. We are talking about 0.25 basis points in this so called 'cycle normalisation of monetary policy'. Cycle? What cycle? I have already described it as a subject like an old book that gets left on the book-swap shelf that no one wants to pick up, or at least I don't! 

Source: iStock

The Yen has flexed its muscles of late and rallied from 104.30 down to 101.20 so far on the back of a weaker greenback to start with, but more importantly, the growing skepticism around the Bank of Japan’s actual ability to continue further with their easing measures this month or for the foreseeable future. 

One might use the 'not so surprising'  weak U.S. service-sector growth data as the catalyst for the continued weakness on the dollar, but given the market's shift in the CFTC where USD longs had already started to come off following the Jackson Hole event dropping to their lowest level since mid-July, this play was already well underway and thankfully didn't turn out like this very troubling dream I had last night, short of USD/JPY, but with the price taking off to 145.00 before I could get out and Armageddon kicking, all systems down, like a scene out of that 1998 film with Bruce Willis crossed with the movie World War Z starring Brad Pitt. 

Always remember to leave a stop loss before going to bed so you don't have such nightmares folks! I'm still feeling scarred from it - one of those bizarre vivid dreams that feel real.

Source: Free Images

Anyway, turns out all is in tact, the Yen is strong, dollar soft, and I was able to have a very normal breakfast and start to the day, but probably very different to how these Central Bankers are waking up everyday, trapped in a nightmare that they have only created for themselves, so not much sympathy there I'm afraid ...

Source: Free Images

Burnt to toast anyone?

Source: iStock

However, the BoJ might have an opportunity to do something about a rising Yen later this month where they will release a review of their monetary policy on the 21st after a two-day policy meeting. However, nothing to date, including their unorthodox measures such as negative rates charged on excess reserves held by commercial banks, have worked. These moves have only turned out to be very unpopular with the public and despite their continued and aggressive attempts, the central bank still is way off  from their goal of reaching a 2% inflation target. 

Let's face it, the BoJ has run out of ammunition and the market knows it, hence the Yen can continue to strengthen and take up its role as the safe haven amidst a very problematic economic global environment that is set to get a lot worse in my opinion. Well, don't just take my word for it, like I have pointe doubt before, the very architect of this nonsense Central Banker policy, Greenspan, has been warning of the problems that we are facing of late. However, it doesn't take a genius to see what is around the corner awaiting us in 2017/18 once these U.S. elections are out of the way. 

Source: Free Images

 The BOJ’s policy of buying up around $784 billion a year in JGB's (Japanese government bonds) is maxed out and don't they know it? Moreover, there is very little more that the BoJ in resect of negative rates because this all trickles down to the public's own financial affairs, as where the banks lose out out, so to will firms and ultimately this will affect employees and pensions in the long run.  For that very reason, Mr. Kuroda recently spoke of how the bank was looking into other measures and that to me exposes the elephant in the BoJ's board room - They are simply out of ammunition and the Yen is dangerously close to a full on breakout. 

It didn't happen last time and that only means that there is pent up bulls that were trapped in that are busting to break free ready to charge down the 100 handle with a vengeance like no other.  

Source: Free Images

However, are there alternatives, to say, helicopter money as a last resort? Well, even so, there just could be one last effort from the BoJ that will only frustrate the bulls even more. In fact, there is now a tendency in the markets to interpret any new expansionary measures as signs of desperation and when the markets are bigger than any Central Bank, that spells very problematic for the Bank of Japan this time around.