Bank of Japan trips the market

6 min read

Oh dear, oh dear! This morning the Bank of Japan tripped up the entire market by not obliging with another all-problem-resolving stimulus package aimed at resolving all the problems left by the last all-problem-resolving stimulus package.

I’m not quite sure when or where BoJ governor Haruhiko Kuroda is supposed to have told the market that he had found another secret stash of kitchen sinks but post-meeting price action, mainly in the foreign exchange markets, would have one believe that he must have made promises.

The yen’s response to the choice by the central bank not to come out to play today was incredibly fierce, strengthening from ¥111.50 to ¥109.00 against the dollar without touching the sides. Is the BoJ missing a trick, or is it trying to disengage from the much spoken about currency war which it seems to be conducting primarily with the ECB and which it is clearly losing? Despite all the aggressive easing on the part of the latter, the yen has risen by more or less 12.5% against the euro since June of last year.

We thought the BoJ had run out of ammunition a long time ago but it keeps on coming back with more, although it seems fair to suggest after today’s reticence that it too is seeing the stimulus barrel as having been pretty much scraped to within an inch of its life.

The Nikkei went into the lunch break and the announcement up around 1.3% at 17,533 but opened after lunch at 17,200 from where it went on falling to close at 16.666.05. The fall will register in the stats as being 624.44 on the day although the actual fall from the day-high is closer to 900 points, a cool 5%. I once again ask to be excused for asking whether the markets have got it wrong or whether it is the central banks or, perhaps more pertinently, how can it be that the two seem to be communicating with each other so badly?

Fed up

For all the criticism of the Federal Reserve in general and the FOMC in particular, the outcome of yesterday’s meeting had little to no effect on trading. That said, the market had no special expectations and therefore there was no great disappointment. The post-meeting statement showed only minor changes in the wording from its March predecessor but what was there was much less dovish than many might have hoped for.

In my reading, I’d suggest the contrary. While acknowledging that the rate of growth appears to have slowed, “ … labor market conditions have improved further…” and “Growth in household spending has moderated, although households’ real income has risen at a solid rate and consumer sentiment remains high”.

The other notable shift in the wording was to remove “However, global economic and financial developments continue to pose risks”. Anyone who was expecting sharp backpedalling and the removal of the possibility, nay, probability, of a further move in rates in either June or July will have found nothing to hang their hat on.

Bankus dinosaurus

I was busy writing this morning when I received an unexpected call from a dear and long-standing friend. He is one of the many who came to the City when things took off at the time of the Big Bang but one of the few who has had a truly sparkling career. He called to say that the time had come for him to hang up his bowler hat and pin-stripes. Succession planning has got the better of him and his employers suggested that the time might have come for him to hand over to a younger person.

We spoke at length about how he had entered the business, like we all did back then, with the intention of retiring at 40. He is now in his mid-50s and, to be frank, I don’t think he’ll be worrying about where the next meal is coming from. I did offer him the maxim which determines my days, namely that I did not get up at 5.15am every morning for over 30 years not to be able to walk away and to do a bit of what I want to, when I want to.

We talked about how the business has changed and how, under the current regime, reaching the senior management level is becoming ever less desirable. Our conversation reminded me of an article I was made aware of by the inimitable Mr Tix of Macronomics that appeared in efinacialcareers and was titled “25-year-old credit traders are going to make things a lot worse” – a view from a ‘veteran’ bond trader“.

The “veteran” in the title has a full 13 years – wow! – of experience but his observations are not significantly different to those of a couple of dinosaurs like me and my retiring friend with our 30-plus years of hanging around in bad company. If regulators and politicians don’t want to listen to the likes of Bob Diamond – remember his testing testimony in front of the House of Commons select committee? – then what this young person has to say might be more palatable though in essence not significantly different. Replacing old school dynamite with modern Semtex?

Meanwhile, the daily “Greece watch” continues. Every prediction offered up by sceptics at the time of the big bail-out is coming true. Even given the best of best-case scenarios, the outcome looked tricky but there has been no best-case. The political class makes a living by fooling the people but things get tricky when it begins to believe its own propaganda. Greece remains a bubbling volcano ready to blow while the geologists are happily admiring the flora.