Kuroda’s Yellen Moment?

BOJ’s Kuroda, speaking moments ago at the London School of Economics, suggested that QQE might wind down by the end of this year.  This is most unwelcome news for the most crowded trade on the planet: the yen carry trade.  Many investors were counting on BOJ ramping up QQE when the economy slows in April after the 60% tax increase kicks in.


  • Must convince public that 2% inflation is nothing special
  • Higher inflation expectations will drive virtuous circle
  • Inflation expectations have been rising
  • Japan growing above potential growth rate
  • Expect moderate recovery, virtuous circle in produciton , spending
  • See annual inflation reaching 2% target by end of FY 2014 (Mar 31, 2015)
  • No sign of asset bubble in Japan but will monitor carefully
  • Will adjust policy if economy weakens
  • Holding some assets to maturity a possibility
  • Premature to discuss exit…we have options/tools other than selling assets

The yen hasn’t reacted much…yet.

2014-03-21-USDJPY 15 min 1044 2014-03-21-USDJPY 4-hr 1044But, ES shed 14.5 points in a hurry, and 10-YR yields accelerated this morning’s divergence with equities.

2014-03-21-TNX 4-hr 1044As we discussed on Mar 11 [see: Sayonara Abenomics] the BOJ is boxed in.  The economy will continue to slow as inflation (especially in food and energy) picks up.  They will eventually panic, of course, and start flooding the markets again with yen.

But, by then, the other side of all those carry trades (equities and fixed income alike) will have rushed for the exits — causing massive unwinds (short covering) and the yen to spike (USDJPY plunge.)  It hasn’t worked out so well for equities in the past…

2014-03-21-EURUSD daily 0700

Don’t look now, but I think the Dow just wrapped up subwave 2 of its third wave (2nd Bat Pattern in a row.)

2014-03-21-DJI 60-min 1100And, the Nikkei — a splat in search of a ledge — just got its nudge.

2014-03-21-NKD daily 1130

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Of course, it might also have been Dallas Fed President Richard Fisher’s comment moments ago that the Fed is “seeing some exhibitions of excessive risk” and has “exhausted the efficacy of QE.”  Gee, do ya’ think?

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