DeepState
Multi-Strategy, Quant and Fundamental
- Joined
- 30 March 2014
- Posts
- 1,615
- Reactions
- 81
Bank of Japan Yield Curve Target Strategy and revised inflation ambitions:
The BoJ decides that they will target yields at the long end explicitly rather than rely only on quantitative measures. Ultimately, they actually want the yield, so this sort of makes sense. Interesting that the money base is now >80% of nominal GDP, vs Europe and US of around 20%. That's an indiction of how much monetary stimulus has gone on in Japan. It is enormous.
...and yet they still can't generate (sufficient) inflation, nor the expectation for generating inflation - which is the key thing they look for. In some move that I don't quite comprehend, when the public doesn't believe a commitment that they will return inflation to 2% pa over some magic timeframe that keeps extending, they decide to respond with a firmer commitment not just to meet this target they have not been able to meet, but to deliberately overshoot it and keep it that way.
The rough equivalent might be something like:
Whilst gradually losing the title fight, having declared at the end of each round that he will knock Mayweather out within the coming two rounds, Pacquaio goes on to declare... "I'm not just going to knock out Mayweather in two rounds, but going to knock him clean out of the ring!" as if that's going to scare Mayweather into submission.
One for the WTF file.
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US Dollar Funding
The BoJ, RBA and BIS have recently made mention of tightening offshore US dollar funding conditions. Interestingly to me, at least, was that this is the result of plans anounced last year, due for implementation shortly, that US money market funds can freeze redemptions. It is causing a flight of capital away from these funds into government bond funds. As a result, financing of US corporate debt is becomming more difficult to secure.
The BoJ decides that they will target yields at the long end explicitly rather than rely only on quantitative measures. Ultimately, they actually want the yield, so this sort of makes sense. Interesting that the money base is now >80% of nominal GDP, vs Europe and US of around 20%. That's an indiction of how much monetary stimulus has gone on in Japan. It is enormous.
...and yet they still can't generate (sufficient) inflation, nor the expectation for generating inflation - which is the key thing they look for. In some move that I don't quite comprehend, when the public doesn't believe a commitment that they will return inflation to 2% pa over some magic timeframe that keeps extending, they decide to respond with a firmer commitment not just to meet this target they have not been able to meet, but to deliberately overshoot it and keep it that way.
The rough equivalent might be something like:
Whilst gradually losing the title fight, having declared at the end of each round that he will knock Mayweather out within the coming two rounds, Pacquaio goes on to declare... "I'm not just going to knock out Mayweather in two rounds, but going to knock him clean out of the ring!" as if that's going to scare Mayweather into submission.
One for the WTF file.
---
US Dollar Funding
The BoJ, RBA and BIS have recently made mention of tightening offshore US dollar funding conditions. Interestingly to me, at least, was that this is the result of plans anounced last year, due for implementation shortly, that US money market funds can freeze redemptions. It is causing a flight of capital away from these funds into government bond funds. As a result, financing of US corporate debt is becomming more difficult to secure.