Nikkei 225: Follow The Trail

Lior Alkalay - Contributor

Since the start of 2017, the Nikkei 225 has lagged in performance; with a 2.8% return since 2017 began, it lagged the S&P 500'S 2.8% RETURN, and it lagged its Asian peers, the Hang Sang and the South Korean KOSPI, which gained 16% and 16.7%, respectively, year to date. Despite all that lagging, however, the future trend for the Nikkei 225 might be the most promising. The reason? The BoJ’s monetary policy, and how it is trailing the performance of the Japanese economy.

BoJ Policy vs Reality

In a recent speech at the University of Oxford, Bank of Japan Governor Haruhiko Kuroda stressed that, despite the latest improvement in Japan’s economic performance, inflation (the rise in prices) is still far from the BoJ’s target of 2%. As the official statistic released from Japan’s statistic Bureau suggests, Kuroda is right. Japan’s headline inflation hit 0.4%, still persistently close to 0%. Add to that the risk of another sell-off in oil and the downside risk for Japanese inflation seems very present. Together, that makes it incumbent upon the Bank of Japan to keep its ultra-loose policy. Nonetheless, something about Japan’s official data doesn't add up. Continue reading "Nikkei 225: Follow The Trail"

BoJ Ready for Helicopter Money?

Lior Alkalay - Contributor - Forex

Helicopter money, that’s the big talk in the past week. The term helicopter money refers to a case where the government hands out money to citizens and funds it through printed money. The last time helicopter money was relevant was back in 2009. That’s when Ben Bernanke, then Federal Reserve Chairman, literally opened up the printing press and poured massive amounts of liquidity into the bond market, in tandem with a massive fiscal stimulus plan from the US government. Now, investors are speculating that the BoJ is ready to unleash a similar move, in coordination with the Abe government. And with the BoJ monetary policy meeting scheduled for this Friday, investors have high hopes. Are these hopes in place?

Kuroda Vs. Abe

In the past several months, BoJ watchers have been routinely underwhelmed by the BoJ’s statements. The BoJ slashed deposit rates to -0.5% and increased its QE program to a whopping ¥80 Trillion. But since those two announcements deflation has returned, yields on Japanese Government Bonds plunged to record lows and Japan’s GDP growth marked a modest 0.1% annually. And still, no monetary bazookas have been announced. Continue reading "BoJ Ready for Helicopter Money?"

USDJPY: Bullish On The Dips

Lior Alkalay - Contributor - Forex

From the Bank of Japan’s recent monetary statements, one might assume that Yen bears have hit a brick wall. The BoJ refrained from adding more stimulus and kept its ¥80 trillion annual bond purchases unchanged.

The BoJ’s reticence seems a disquieting throwback to the monetary policy of the Shirakawa days. Then, the BoJ was in a clear state of denial and refrained from making extra stimulus. Now, though it may seem history is repeating itself, this is not the case. Governor Kuroda is certainly no Shirakawa, and the Yen is not about to get stronger.

What Is The BoJ Really Doing?

At first blush, it just doesn’t add up. How can this be the same Haruhiko Kuroda? The man who announced ¥80 trillion in stimulus in a jaw dropping move suddenly and inexplicably turned passive. But, as the saying goes, appearances can be deceiving. In fact, the BoJ is really making a very calculated move. Continue reading "USDJPY: Bullish On The Dips"

Yen Spike: An Opportunity in the Making?

Lior Alkalay - Contributor - Forex

The BOJ Governor, Haruhiko Kuroda, never disappoints when it comes to producing a juicy headline for the newswires. Last time, if you will recall, it was the surprise addition of new stimulus. This time around, in his speech to the Shūgiin, Japan's House of Representatives last week, Governor Kuroda exclaimed that "the Yen is fairly valued." He then continued to outline how the merits of monetary policy have limits.

And what was investors take on Kuroda's message? Clearly fearful. That was evident by the avalanche of investors who failed to consider the underlying message and quickly switched to crowded Yen buying. The USD/JPY move was brutal, with the pair taking a nose dive of 300 pips. Of course, soon after, analysts and experts provided their own take. Opinions ran from "The remarkable rise of the USD/JPY has finally come to an abrupt end" to "the BOJ will not add more stimulus." In fact, big bets on more and more stimulus are now well off the table. But, before you decide to follow the crowd, take a moment to stop, ponder and try to see this for what it very well may be. Simply put, perhaps the spike in the Yen's value is actually an opportunity to sell it high.

Kuroda Vs Bernanke

Markets are looking at Kuroda's speech as the BOJ saying, essentially, that shorting the Yen from here on out might not be such a good idea. It might also suggest that if the BOJ is pleased with the current value of the Yen, that they might then be less accommodative. Of course, no one knows what exactly goes through the governor's head except Kuroda himself, yet we can speculate. Before I do that, let me first draw a comparison to another central banker, Ben Bernanke, the now retired chairman of the Federal Reserve Bank. Continue reading "Yen Spike: An Opportunity in the Making?"