The policies and actions of the Bank of Japan for some investors has become as scrutinized as those of Federal Reserve.
Next week bank members meet again to discuss and set future policy. What makes BOJ action so attention-grabbing is their experiment recently with negative interest rates. Though not alone in their NIRP scheme, Japan still represents one of the globe's largest economies. So far it been no go in their radical attempt to resuscitate growth and the much desired central bankers nearly everywhere yearn for--some sign of inflation.
The upshot is not a growing economy but growing differences of opinions among bank governors. What's significant here is BOJ board members are not alone. As the WSJ notes:
It is part of a larger unease in the central banking world, where years of easy monetary policy have failed to achieve goals in Europe as well as Japan, and the U.S. Federal Reserve is struggling with how and when to follow through on a long-advertised tightening.
Doubts about where central banks are headed are rippling through global markets, jolting investors who long piled into stocks and bonds as central banks flooded the world with cheap money.
A bond selloff sent yields on longer-term benchmark German and Japanese bonds surging this month, after historic lows earlier this year. The yield on Japan’s 30-year bond nearly hit zero in July but has jumped to about 0.55%. The S&P 500 stock index, which went two months without a 1% move, recently posted three of that size in three trading days.
The suspicion that central-bank firepower is reaching its limits finds support in Japan, where the BOJ has yet to generate steady inflation despite buying nearly $800 billion of bonds annually since late 2014, plus billions of dollars worth of exchange-traded funds. Economic growth is fragile, while the yen has been on a tear—the opposite of what the central bankers wanted and of what Japan’s exporting companies need. Japan’s stock market is down 12.7% this year.
As these next two charts from the WSJ show the BOJ has been buying government bonds with both hands, but core consumer prices have been declining not rising. Perhaps more importantly prices on the long end of the bond curve have been falling and yields rising, not necessarily what those BOJ board members intended let alone expected. So here again we have the yin and yang of expected and intended. Buried somewhere in the middle is credibility, the loss of which will be this global gaggle of bureaucrats' worse bad dream should investors finally catch the drift.
Keep in mind that both the BOJ and the Fed have meetings planned for next week.
Japanese government bonds held by the Bank of Japan
Falling Consumer Prices
Like the words of an old song, "What now, my love?" It's a question you should be figuring out the probabilities.
Next week bank members meet again to discuss and set future policy. What makes BOJ action so attention-grabbing is their experiment recently with negative interest rates. Though not alone in their NIRP scheme, Japan still represents one of the globe's largest economies. So far it been no go in their radical attempt to resuscitate growth and the much desired central bankers nearly everywhere yearn for--some sign of inflation.
The upshot is not a growing economy but growing differences of opinions among bank governors. What's significant here is BOJ board members are not alone. As the WSJ notes:
It is part of a larger unease in the central banking world, where years of easy monetary policy have failed to achieve goals in Europe as well as Japan, and the U.S. Federal Reserve is struggling with how and when to follow through on a long-advertised tightening.
Doubts about where central banks are headed are rippling through global markets, jolting investors who long piled into stocks and bonds as central banks flooded the world with cheap money.
A bond selloff sent yields on longer-term benchmark German and Japanese bonds surging this month, after historic lows earlier this year. The yield on Japan’s 30-year bond nearly hit zero in July but has jumped to about 0.55%. The S&P 500 stock index, which went two months without a 1% move, recently posted three of that size in three trading days.
The suspicion that central-bank firepower is reaching its limits finds support in Japan, where the BOJ has yet to generate steady inflation despite buying nearly $800 billion of bonds annually since late 2014, plus billions of dollars worth of exchange-traded funds. Economic growth is fragile, while the yen has been on a tear—the opposite of what the central bankers wanted and of what Japan’s exporting companies need. Japan’s stock market is down 12.7% this year.
As these next two charts from the WSJ show the BOJ has been buying government bonds with both hands, but core consumer prices have been declining not rising. Perhaps more importantly prices on the long end of the bond curve have been falling and yields rising, not necessarily what those BOJ board members intended let alone expected. So here again we have the yin and yang of expected and intended. Buried somewhere in the middle is credibility, the loss of which will be this global gaggle of bureaucrats' worse bad dream should investors finally catch the drift.
Keep in mind that both the BOJ and the Fed have meetings planned for next week.
Japanese government bonds held by the Bank of Japan
Falling Consumer Prices
Like the words of an old song, "What now, my love?" It's a question you should be figuring out the probabilities.
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