http://www.zerohedge.com/news/2013-05-27/japanese-stocks-extend-overnight-plunge-down-over-14-highs
Submitted by Tyler Durden on 05/27/2013 08:22 -0400
and.....
http://www.zerohedge.com/news/2013-05-26/japanese-stocks-open-23-jpy-and-jgbs-unch
Submitted by Tyler Durden on 05/26/2013 20:12 -0400
Stronger yen and stronger JGB OR stronger equities ..... Either or but not both !
http://www.zerohedge.com/news/2013-05-26/chart-boj-most-worried-about-and-so-should-you-be
Submitted by Tyler Durden on 05/26/2013 17:01 -0400
Rates are climbing even with massive purchases by the bank of Japan. That tells you banks and pension plans are attempting to unload existing inventory as well.
There is no one to unload to, except the Bank of Japan. Yet given age demographics, pension plans are now net sellers of Japanese bonds. And Japan is still piling on more debt with a 10-trillion Yen ($128 billion) stimulus package.
Kuroda says "rates must stay low until the economy improves" but in spite of the improvement in the stock market, business investment and demand for loans shrank for the 5th straight quarter.
The only way rates can stay low with this borrowing is is the Bank of Japan buys 100% of new issuance and all sellers of existing bonds at a price the central bank likes.
This is theoretically possible, but only if Japan is prepared to suffer the consequences of a collapsing Yen.
Further Reading
Mike "Mish" Shedlock
Japanese Stocks Extend Overnight Plunge - Down Over 14% From Highs
As if the overnight session in Japan was not bad enough, futures markets are indicating yet more weakness from the market that seemed (until 3 days ago) incapable of falling. With a 14.3% drop from its May 22nd highs, Japan's Nikkei 225 is struggling to find buyers for this dip. What is interesting is the bid for European peripheral debt and equity markets this morning and the bounce in US futures (with no commensurate move in JPY which is hovering around 101). Gold and Silver are up around 1% with the USD unchanged. Treasury Futures imply a rise of 1-2bps in yield.
and just as the NKY saw its blow-off top, now US equities are ignoring the drop (for now)...
(h/t Sean Corrigan)
and.....
http://www.zerohedge.com/news/2013-05-26/japanese-stocks-open-23-jpy-and-jgbs-unch
Japanese Stocks Open -3%, JPY Under 101.00, JGBs -2bps
UPDATE 1: S&P 500 futures now red (-5.5 points from open); TOPIX -3%, Japanese banks and real estate leading the slide (-16% from highs).
UPDATE 2: JPY has broken back under 101.00
It seems the sell-the-f$$king-bounce crowd are back in Japan once again. Minutes from the last BoJ meeting are providing some ammo for the fall as doubts appear among the members of the committee...
- *ONE BOJ MEMBER: DOWNSIDE RISKS FOR PRICES ARE LARGER
- *A FEW MEMBERS: SEEMS HARD TO REACH 2% IN LATTER HALF OF PERIOD
- *A FEW MEMBERS:KEEP MULLING STEPS TO AVOID DECLINING LIQUIDITY
For now, JPY has strengthened notably from its gap-weaker open and is trading around unchanged from Friday's close. JGBs opened modestly stronger. But it is the equity market that is fading fast with TOPIX now down 28 points (2.5%) from Friday's close - pressuring the lows once again (and the 10% correction) as the realization that 'Abe can't have his equity euphoria and eat his low interest rate cake too' increases...
Stronger yen and stronger JGB OR stronger equities ..... Either or but not both !
http://www.zerohedge.com/news/2013-05-26/chart-boj-most-worried-about-and-so-should-you-be
The Chart That The BoJ Is Most Worried About (And So Should You Be)
Until the last few days, the attention of the mainstream business media has been on how 'wonderful' Japan's policy prescription must be since its stock market is soaring at a record pace. The reality is that the far bigger JGB market has been crumbling. As we explained here, this is a major problem for the bubble-blowers, as the extreme volatility (VaR shock)that the Japanese Government Bond market has been through in the last few weeks has some very large and painful consequences, that as yet, have not been discussed widely. The term 'shadow banking' has been one ZH readers are by now extremely familiar with as we have discussed this as the panacea of unseen leverage (most recently in Europe and China) for years; the funding markets in Japan, so heavily reliant on JGB repo for short-term liquidity and the efficient functioning of two-way markets in the bonds, are hitting a wall. As JPMorgan notes, the number of JGB 'fails' - where a repo deal breaks down - has more than doubled in the last week. For a market that represents 40% of the total Japanese money-market, this will be a critical area to watch for a JGB waterfall.
Via JPMorgan:
The sharp rise in JGB volatility has not left the JGB repo market unaffected. The ¥80tr largeJapanese repo market accounts for 40% of the total size of Japanese money market (which it also includes CDs/CPs, currency swaps, BoJ money market operations, and Call transactions) and it is an important lubricant of the JGB market. This is because repos with JGBs as collateral, account for more than 99% of domestic repo transactions. The haircuts are typically very low in the JGB repo market ranging from zero to 2%. This is because market participants are comfortable or accustomed to control risks through margin calls without often setting a haircut upfront.But these margin calls or haircuts where applicable, tend to rise when volatility rises. And the rise in margin calls or haircuts has caused a rise in “fails”. 175 fails in the month of April represents a sharp increase from March but it is still much lower from the >1000 figures seen immediately post Lehman. A fail is a situation where a recipient of JGBs in a transaction does not receive the JGBs from the delivering party on the scheduled settlement date.Typically the number of fails in Japan is quite small, partly because market participants try to avoid fails in advance, and because some market participants have never experienced fails. According to the BoJ, the situation is quite different from that prevailing in US repo markets, where fails occur much more frequently than in Japan and where market participants take action in accordance with the fails practice on a daily basis.The retrenchment in Japanese repo market is then fed into the JGB market propagating the initial volatility (VaR) shock. The repo market is used by market participants for funding or short selling and its functioning is important in maintaining a two-way market for JGBs.
http://globaleconomicanalysis.blogspot.com/2013/05/large-risk-of-instability-in-japan.html
Sunday, May 26, 2013 12:00 PM
Large Risk of Instability in Japan; Rates Climb Even With Japan Buying 70% of New Issuance
When political leaders do out of there way to make make mollifying statements on the economy, it's a sure thing the opposite is about to happen. Platitudes are flowing in Japan as Haruhiko Kuroda, Japan’s central bank governor, says the risk of systemic instability is “not large”.
The correct interpretation of course is "the risk of instability is huge". Please consider Haruhiko Kuroda says rates must stay low until economy improves.
The correct interpretation of course is "the risk of instability is huge". Please consider Haruhiko Kuroda says rates must stay low until economy improves.
Haruhiko Kuroda, Japan’s central bank governor, said the country’s financial system could cope with rising interest rates only once the economy improved, as he laid out the stakes in his attempt to tame the volatile bond market.Rates Climb Even With Japan Buying 70% of New Issuance
Japanese banks and insurance companies have accumulated vast holdings of government bonds whose value would fall sharply if investors demanded higher yields on newly issued debt. The BoJ calculates that a 1 percentage point rise in rates would lead to mark-to-market losses equivalent to 10 per cent of tier one capital at big banks, and 20 per cent at weaker regional lenders.
Mr Kuroda said he believed that Japanese financial institutions were “strong enough to deal with these negative effects even if such a situation occurred” and that the risk of systemic instability was “not large”.
Rates on 10-year Japanese government bonds climbed to 1 per cent last week for the first time in a year. The market has gyrated since Mr Kuroda announced in April that the BoJ would dramatically increase its purchases of JGBs, to the equivalent of about 70 per cent of new issuance, in an effort to stimulate lending and investment and reverse more than a decade and a half of consumer price declines.
Rates are climbing even with massive purchases by the bank of Japan. That tells you banks and pension plans are attempting to unload existing inventory as well.
There is no one to unload to, except the Bank of Japan. Yet given age demographics, pension plans are now net sellers of Japanese bonds. And Japan is still piling on more debt with a 10-trillion Yen ($128 billion) stimulus package.
Kuroda says "rates must stay low until the economy improves" but in spite of the improvement in the stock market, business investment and demand for loans shrank for the 5th straight quarter.
The only way rates can stay low with this borrowing is is the Bank of Japan buys 100% of new issuance and all sellers of existing bonds at a price the central bank likes.
This is theoretically possible, but only if Japan is prepared to suffer the consequences of a collapsing Yen.
Further Reading
- Will Shinzo Abe Succeed with Constitutional Changes to Militarize Japan and Further Destroy the Yen?
- Nikkei Plunges 1,143 Points (7.32%); Global Equities Hammered; Start of Reflation Bubble Bust?
- Abenomics in Review: Yen, Inflation, Exports, Imports
Mike "Mish" Shedlock
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