The Tokyo Whale is suffering from indigestion today

Today is certainly a day when I am reminded of the opening of the cartoon series Stingray “Stand by for action!”. The irony is that it is what the apocryphal civil servant Sir Humphrey Appleby would call “masterly inaction” which has caused it. The last 24 hours have seen several of our current masters of the universe issue policy statements. The US Federal Reserve and Janet Yellen  was singing along to “land of confusion” by Genesis yesterday evening but the real action has come in response to the Bank of Japan.

The Bank will purchase Japanese government bonds (JGBs) so that their amount outstanding will increase at an annual pace of about 80 trillion yen…..The Bank decided, by a 7-2 majority vote, to continue applying a negative interest rate of minus 0.1 percent to the Policy-Rate Balances in current accounts held by financial institutions at the Bank.

Let me just mark the point that in a culture of “face” then any dissent is significant and that one of the individuals dissented ( Mr. T. Kiuchi.) on three other points as well.

Abenomics meets the currency wars

The response in the currency markets was both immediate and strong as the Japanese Yen surged yet again. This is the polar opposite of what is supposed to happen under both conventional economics and the version of it being applied in Japan called Abenomics where the 80 trillion Yen a year of QE ( called QQE in Japan because QE has such a track record of failure it got rebadged ) is supposed to lead to a falling currency. It did for a time but no longer.

The Yen which had been strengthening anyway roared higher and higher like a living thing as it pushed through 104 versus the US Dollar to 103.8 as I type this. So the Yen is now some 15% stronger than it was a year ago in spite of all the QQE and rhetoric as we note again that something big is happening here. Putting it another way it has gone back to a level last seen in August 2014 so undoing nearly two years of effort under Abenomics.

However this does not fully reflect things because we are comparing with another strong currency. Our own domestic currency the UK Pound £ can help with this. The Yen fall against the £ driven by Abenomics saw it fall from just below 130 to 195 just over a year ago whereas now it is at 147. So some 73% of the move has been retraced.

Recently I mentioned the economic problems of South Korea due to the far eastern currency wars with both Japan and China looking to devalue. Well there will be some smiling in Seoul today with it taking 11.25 Won to buy a Yen as opposed to the 9.3 of last November.

Equity markets and bond yields

The bad news for Abenomics continues with a 3% drop in the Nikkei 225 to 15434 today. This means that it has fallen by around 24% over the past year meaning that the trumpeted “wealth effect” which we heard about in the 52% rally in 2013 is now negative.

Happier news for Abenomics is the surge in Japanese Government Bonds because of cause the Bank of Japan has so many of them. Sake all around! Oh hang on! Who can it  ever sell them to for profit-taking? 373,846,107,781,000 Yen and rising fast is a mere bagatelle or something like that.

In terms of market detail Reuters gives us the price highs and yield lows including yet more negativity.

The 10-year JGB yield fell to minus 0.205 percent , after plumbing a record low of minus 0.210 before the BOJ’s announcement…….with the 20-year yield down 4.5 basis points at a record low 0.095 percent and the 30-year yield down 5.5 basis point at record low 0.150 percent.

The Tokyo Whale

Back on April 25 th I covered this issue which is the way that the Bank of Japan is building up holdings of equities as well as bonds.

Indeed the Bloomberg analysis went further.

At an estimated 8.6 trillion yen as of March, the BOJ’s holdings amount to about 1.6 percent of the total capitalization of all companies listed in Japan. That compares with about 5 percent held by the nation’s Government Pension Investment Fund.

So three months on we know that the whale will have been gorging itself as it tells us here.

The Bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at annual paces of about 3.3 trillion yen and about 90 billion yen, respectively.

So if the buyers of the Bank of Japan are on pace they will have purchased an extra 0.8 trillion Yen or so since March making the total an estimated 9.4 trillion Yen. I have looked at the accounts as of June 10th  but they are opaque as the holdings are spread over several categories with no break-down. But if the Tokyo Whale held 55% of Japanese equity ETFs in March then it holds around 60% now. What could go wrong?

One minor hiccup at the moment is that all of the latest purchases are loss making and indeed with the market down 23% on a year ago the outlook seems to be rather like this from Madness for Japanese taxpayers.

No committment, you’re an embarrassment,
Yes, an embarrassment, a living endorsement,
The intention that you have booked,
Was an intention that was overlooked.

Oh and never believe anything until it is officially denied

BOJ Exec Dir Amamiya: Do not think that BoJ’s presence in ETF market is too big ( @moved_average )

Interest-Rate Negativity

Back on the 29th of January the Bank of Japan played what it thought was its master stroke which was the announcement of a negative interest-rate of 0.1%. How is that going in terms of wealth-effects and Abenomics?

Back then the Nikkei 225 closed at 17,635 and the Yen fell to a low of 121.68 versus the US Dollar.

I suppose that it what you get when you listen to the “experts” and make it complicated to the nth degree.

Mr. T. Sato and Mr. T. Kiuchi dissented considering that an interest rate of 0.1 percent should be applied to current account balances excluding the amount outstanding of the required reserves held by financial institutions at the Bank, because negative interest rates would impair the functioning of financial markets and financial intermediation as well as the stability of the JGB market.

Stability now goes into my financial lexicon for these times perhaps next to “price stability” which of course means anything but price stability.


There is much to consider here as the leader of the pack in the central banking universe finds itself subject to my critique that it has implemented a type of junkie culture with the more,more, more approach of Abenomics. A consequence of this is that financial markets mostly spend their time front-running central banks which means that no further action leads to nothing to front-run and reversals. The current action which is purchases of Japanese Government Bonds on such a scale the market has frozen up is very passe now and old news in this respect.

So for the Tokyo Whale it is time to sing along to Iron Maiden.

Don’t want to be here
Somewhere I’d rather be
But when I get there
I might find it’s not for me

Don’t know what I want
Or where I want to be
I’m feeling more confused
The more the days go by.

Of course Iron Maiden taught some European heads some humility earlier this month.


I think another convention of these times that there is no money in music needs a bit of a rethink……..



15 thoughts on “The Tokyo Whale is suffering from indigestion today

  1. On your topic of Sir Humphrey Appleby’s favourite phrase of “never believe anything until it is officially denied”, did you see the letter from our very own Mark Carney detailing his impartiality in the Brexit debate, swiftly followed by David Cameron’s shock at the very thought that we would weaken our institutions by hinting that they might not be impartial.
    I actually think that the makers of Yes, Prime minister would have rejected much of the propaganda from the government as too implausible to constitute comedy.

      • He is probably taking comfort from the £35 billion which John Macdonnell and Gordon Brown have today said that we can get from the EU…

  2. I would be interested to hear a reason why to opposite is happening to what the BOJ want? I have asked a few people but nobody can really explain why the market fell and the Yen strengthened. I am not sure the BOJ understand either as they keep on doing the same thing expecting a different result.

    • I am guessing (and it is just that) that psychology has taken over. When BoJ went into negative territory, I guess that many people thought that it would go further in that direction, so keeping the rate the same seems like a tightening of some sort. The medicine has less and less effect, as Shaun keeps pointing out.
      You can see the same in Europe, where 80 billion of QE a month replaced 60 bn. 80 is now the new norm and a reversion to 60 will be seen as tightening policy.

      • James, so what would be considered loosening ?

        100billion? 120 ?

        as its all computer bits why not 200billion?

        I see no ceiling here ……. umm


    • More equities being purchased but MANY MORE Bonds being purchased by BOJ cue speculators sell out of equities and buy bonds driving equities down and bond prices up, consequently yields go further down which is what BOJ wants.

      Yen goes higher as foreign speculators rush to buy Yen in order to buy Japanese Government Bonds to capture the upside created by the BOJ so more demand for Yen = Yen driven up.

      I remember studying this relationship in O level economics but it seems the “experts” and the establishment have forgotten basic relationships, especially human greed…..

  3. What could go wrong?

    expecting a recovery and a fast growing economy

    as I have expressed before , Shaun , what happens if theres no recovery ?

    they do more of the same !

    until when? ah now there’s the rub , eh ?

    whilst the RoW are doing the same then this charade will go on

    I cant tell you exactly when the bubble will pop but between 7 days ( if the Brit-innys are right) and 2022, ( some inkling of 2018 due to oil prices spiking again)

    So what is the percentage needed to break the market – already exceeded

    to blow it up ? I’ll let you know by 2022 🙂


    • Hi Forbin

      Japan gets the ocassional flurry as we saw in the first quarter of this year when GDP growth hit 0.5% but as the previous quarters were -0.4%,0.4% and -0.4% very little ground is being gained. Due to population shrinkage the GDP per capita looks a little better but meanwhile the national debt rises and rises. In essence this appears to be on repeat.

  4. in other news open mouth operations are in full swing as Comical Carney proclaims that a Brexit
    is a finacial risk …..

    presumably to his pension pot ….

    as his other “guidance” has been 100% wrong we can conclude markets will have stella rise if the UK votes to leave the EU !!


  5. Hi Shaun
    Great blog again Shaun.
    So by next christmas Japan seems
    likely to achieve yen/dollar parity with
    the nikkei index of 1, the gigantic all
    encompassing whale will beach itself,
    explode and cause global warming
    of a very smelly variety.


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