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?"

What's Really Happening With The Japanese Yen?

Lior Alkalay - Contributor - Forex

The Japanese Yen is making headlines, again. The Dollar-Yen trade pierced through the 110 support level and the Bank of Japan's credibility is at stake. It's only a matter of time before the BoJ swings its "sword" and slice rates again, or at least, so it seems. But while Yen strength has caused quite a stir in Japan, its origins, this time around, are rooted elsewhere.

Wall Street is flat, European bourses are falling and China isn’t out of the woods just yet. Japanese corporates keep hoarding cash and, of course, they need to park it somewhere. That “somewhere” is their default choice; i.e. repatriate the cash and buy into the safety of Japanese Government Bonds.

Chart of the Japanese Yen
Chart courtesy of Bloomberg Press

As illustrated in the chart, when comparing the Bloomberg Japan Sovereign Bond Index with S&P500 and Nikkei 225, demand for Japanese Government Bonds has been strong. Japanese Government Bonds beat both the S&P500 and the Nikkei 225 for the passing year. And that’s even more interesting when you consider the negative yields—it actually costs to hold Japanese Government Bonds.

How long can Japanese corporates keep repatriating funds and pay for the "privilege" to hold Japanese Government Bonds? Continue reading "What's Really Happening With The Japanese Yen?"