The BoJ’s Dilemma

The BoJ continues to battle what’s left of the market over the rate on benchmark 10Y bonds.  Earlier today, it again stepped in to put a lid on rates at 0.10%.

Some analysts assume Kuroda will take steps to normalize rates in order to relieve pressure on banks and create some headroom for future easing.  To this, I say “fat chance.”

First, with its enormous debt burden, Japan needs higher rates like a fish needs a bicycle.  Second, higher rates would bolster the yen which we all know craters equities.

While it’s possible Kuroda will utter some mumbo-jumbo that sounds logical enough, there is simply no way he will do anything to endanger the patient — already on life support.  the only analysts who don’t understand this are the ones who don’t understand the yen carry trade.

The USDJPY has already backtested the broken rising channel from 2010.  Yet, it has also backtesting the broken falling channel from 2015.  As such, it is truly in limbo.  And, as long as central bankers can maintain equity values by doing essentially the same thing they’ve been doing, they will.

Speaking of which…guess which algo bait helped stocks recover from Friday’s tumble?

Algos weren’t too thrilled with CL’s breakdown, but are willing to forgive and forget now that it has tacked on a couple of percent (as usual, in the after-hours.)And, as always, VIX was only too happy to plunge in the last few minutes of trading.

All together, it’s a delicate balance that has the algos seeming a bit wary.  With more and more carbon-based investors reigning in their equity exposure, can TPTB keep all these plates spinning?

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