We find ourselves opening the week by looking East but this time to Japan, although there is a Chinese nuance. This saga starts in the foreign exchange markets on Friday where in the early hours the Japanese Yen took rather a dive to 146.60. Just as analysts were sending out their explanation of the drop this happened.
TOKYO, Sept 27 (Reuters) – Japan’s incoming prime minister, Shigeru Ishiba, said he wanted to clean up his ruling party, revitalise the economy and see off security threats from powerful neighbours after triumphing in his fifth and what he called final leadership bid on Friday.
The Japanese Yen then reversed course and had a turbo-charged rally as the political uncertainty looked like being over. It then surged into the 142s and this morning into the high 141s and is now 142.45. So we have yet again see the Japanese Yen really bounced around and imagine what that has done to the remnants of the Carry Trade! Those holding on will have just been readying their reports telling everyone how they are a financial genius just in time to find themselves sent to the corner with a dunces cap on.
Returning to the Japanese position they are apparently watching.
TOKYO, Sept 21 (Reuters) – Japan’s top currency diplomat Atsushi Mimura said authorities are “always watching markets” as a renewed build-up of yen carry trades could heighten market volatility, public broadcaster NHK quoted him as saying in an interview that ran on Friday.
That is a classic Japanese response and sadly no-one will have asked how it happened in the first place if they were watching?
“But if such moves increase again, that could heighten market volatility. We are always watching markets to ensure that does not happen,” Mimura was quoted as saying.
We have seen some wild swings in the Japanese Yen in recent times.
ORLANDO, Florida, Sept 15 (Reuters) – Hedge funds are their most bullish on the Japanese yen in eight years, but as their ‘long’ positions grow and the currency strengthens, yen volatility is also rising.
If they held the position those hedge funds will be happy today but the underlying point here is that the world’s third most traded currency has been bounced around like a rubber ball in recent years. For our purposes this is an important point as the control-freakery of the Japanese state or Japan Inc has led to this.The control over the bond and then stock market via The Tokyo Whale then the persistence of negative interest-rates meant the only release valve was the Japanese Yen. Of course they have intervened there too.
Control, now I’ve got a lotControl, to get what I wantControl, never gonna stopControl, now I’m all grown up ( Janet Jackson)
Japanese Equity Market
There is a tactical irony to the strategic plan above as I warned on social media on Friday and Saturday suggesting the Nikkei 225 equity index could open 1000 points down. For newer readers the theory goes as follows. Because Japan is an exporting nation there is a strong inverse relationship between the stock market and the Japanese Yen. I see someone kept their sense of humour.
While in #Japan Investors panic as the #Nikkei 225 plummets 4.5% to levels not seen since last Wednesday. ( @Letz_Startup)
The actual decline at the close was 1918 points or 4.82%. A further context is that before 2024 the closing level of 37,903 would have been a multi-decade high. But the real point is that the Tokyo Whale drove it up via its purchases of some 37.2 trillion Yen’s worth of exchange-traded funds or ETFs. On a mark to market basis that must be somewhere north of 80 trillion now. Equities were also made to look attractive as the Tokyo Whale in its incarnation as the Bank of Japan kept interest-rates at -0.1% for so long making pretty much any dividend look attractive.
But whilst it succeeded in driving the Japanese stock market higher we are also seeing large swings and volatility.
China Stimulus
We can gain a further perspective via the Chinese stimulus programme I looked at last Tuesday. In many ways it is looking rather like this.
I’m turning JapaneseI think I’m turning JapaneseI really think soTurning JapaneseI think I’m turning JapaneseI really think so ( The Vapors)
At this point they are not explicitly buying equities in the manner of the Tokyo Whale but they are implicitly doing so by loaning funds the money to do so. We can now move from cause to effect.
TURNOVER IN #CHINA‘S SH SZ MARKETS HITS 2.59 TRILLION, BREAKING RECORD.
SHANGHAI COMPOSITE INDEX CLOSED UP 248.97 POINTS, OR 8.06%, AT 3336.5
SHENZHEN COMPONENT INDEX CLOSED UP 1014.89 POINTS, OR 10.67%, AT 10529.76
CSI 300 INDEX CLOSED UP 314.17 POINTS, OR 8.48%, AT 4017.85
CHINEXT INDEX CLOSED UP 289.6 POINTS, OR 15.36%, AT 2175.09. ( CN Wire)
As you can see quite a party was had by all those long Chinese shares today and if you were then well done. This added to the post stimulus gains last week with the Chinese version of The Plunge Protection Team no doubt having a whale of a time.
Wild…. Another 11% jump for tech-heavy Chinext Price Index after 10% rally on Fri ( @Cathy Yuan Zhang)
Plus something you may not expect.
The Chinese stock market outperforms the U.S. YTD, Wind terminal shows. ( CN Wire)
There are important fundamental points here. Firstly just look at the wold swing there has been in relative equity market levels between Japan and China. This is the financial tail swinging the main street dog especially if you wonder along these lines.
KWEICHOW MOUTAI’S TURNOVER EXCEEDED 24 BILLION YUAN IN CHINA, LARGEST ONE-DAY GAINS IN HISTORY. The market seems to be showing that stock market rallies are becoming a uniquely Chinese way of stimulating consumption, akin to giving out money. ( CN Wire)
A type of Helicopter Money drop which is squeezing the previous one in Japan? Are they more wedded to the concept of Wealth Effects than any other central banks? One price is that they are making their stock markets ever more of a casino. Sophisticated investors may get ahead of the game but what is Joe and Josephine six-pack supposed to do here? On this road investing simply returns to being front-running the central bank.
Oh and speaking of wealth effects.
(Reuters) – The People’s Bank of China (PBOC) told commercial banks on Sunday to start lowering interest rates on all existing housing loans, in a sweeping move to help lighten the mortgage burden on households hit by a slowing economy. All commercial banks must, in batches, reduce interest rates on existing mortgages by Oct. 31 to no less than 30 basis points below the PBOC’s Loan Prime Rate (LPR), the central bank’s benchmark rate for mortgages, a PBOC statement said.
Comment
As you can see there is a lot taking place that the ordinary person will not be aware of.You could call it the revenge of the central planners or more oddly a version of communism via pumping up the stock market. In the future will falls in the stock market be made illegal?
Also as we see currencies swing wildly we are taught again that you can only control so much.