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When Does the Japanese Yen and/or Bond Market Totally Collapse?

Since mid-2011 the Yen has crashed over 40% vs the US dollar. What's ahead?
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Yen vs US Dollar chart courtesy of stockcharts.com annotations by Mish.

Yen vs US Dollar chart courtesy of stockcharts.com annotations by Mish.

I have been following this chart but have not commented on it. Jim Bianco at Bianco research posted a series of Tweets well worth a look. 

Tweet Thread

The Bank of Japan (BoJ) has been operating with yield curve control since September 2016. The current iteration is targeting the 10-year JGB yield at 0% with a 25-basis point band/range (gray shade).

The BoJ has been intervening with unlimited buying to prevent the 10-yr JGB yield from exceeding 0.25% So far it is working, but the yield is still at the top of the band.

The Japanese Yen has been collapsing (a rising line on the chart below). See the orange box. This is one of the biggest one month moves ever in the Yen. A complete surprise to most.

Yield Curve Control (YCC)

Many economists (incl Lael Brainard) matter of factly promote yield curve control as a legitimate policy tool.

The problem is it works until it blows up. This is what happened to Australia's YCC last year, it blew up ... badly

Is YCC now "blowing up" in Japan?

Note: Lael Brainard is the Fed's vice-chair.

So, the BoJ can prevent the 10-year JGB from rising or the Yen from collapsing. BUT THEY CANNOT DO BOTH. For now, the BoJ picked preventing the 10-year JGB yield from rising. But if the Yen keeps weakening will the markets force them to abandon yield curve control?

Why the Yen Has Weakened and What Japan Is Doing About It

On March 31, Bloomberg commented Why the Yen Has Weakened and What Japan Is Doing About It

Central Bank Policy Mistakes Everywhere

What the BoJ has been doing about the collapse is clear. The answer is nothing as noted by Bianco.

Instead, the BoJ have been doing what every central bank does: Stick with policy long after it's clear policy should be abandoned. 

Flashback April 23, 2018

Let's review my April 23, 2018 post Japan Expects to Hit 2% Inflation in 5 Years, Aggressive Easing Will Continue

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It may take Japan five more years to reach its 2% inflation target according to BOJ governor Haruhiko Kuroda.

I commented "It's pretty amazing how Japan has failed to destroy its currency despite decades of trying."

I provided guidance for Japan. Please see Mish’s Sure Fire Proposal to End Japanese Deflation

Mish’s Four Pronged Proposal to End Japanese Deflation

  1. Negative Sales Taxes
  2. One Percent Tax, Per Month, on Government Bonds
  3. National Tax Free Lottery
  4. Hav-a-Kid

Success?!

Hooray, Japan is now "succeeding" in destroying its currency just as the Fed finally had "success" in generating inflation. This is despite not trying my guaranteed method.  

However, despite blasting its currency, the consumer price index for Japan in February 2022 was 100.7 (2020=100). That's a year-over-year increase of only 0.9% over the year. 

But more "success" is on the way. Japan's CPI was up 0.5% from the previous month on a seasonally adjusted basis.

Hooray?!

Bank of Japan’s Governor Haruhiko Kuroda said a weaker yen is fine by him. The forex market is taking Kuroda at his word. 

When the Bank of Japan finally "succeeds" at producing two percent inflation, I sure hope they stop to take a bow, unlike the Fed.

Well Deserved Bows

Forget About a Soft Landing, What's the Shape of the Hard Landing?

After having failed to take a well-deserved bow for amazing "success" it seems the Fed has a problem of a different kind. 

For discussion, please see Forget About a Soft Landing, What's the Shape of the Hard Landing?

We are headed for a global hard landing. 

This post originated at MishTalk.Com.

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