BOJ's Kataoka warns against premature exit from easy policy

This is good news for institutional traders and investors such as myself in terms of providing extra security layer of liquidity to stabilize the interbank market even more. Kuroda-san and the BOJ crew will mostly like keep the monetary policies' status quo for his reappointment.

For most individuals, which I like to call the retail space perspective, such as employees who rely on paycheck from their boss, or self-employed people who own their position, as well as small cap business owner operators might view BOJ's monetary policies to end deflation with QQE (quantitative qualitative easing) which has not really shown the optimal results as evidenced by the current inflation statistics.

I agree that Kuroda's policies has been overall ineffective in creating meaningful real wage growth among the masses but instead trickling it down to the institutional space such as blue chip big cap corporations, banks, etc. who then takes advantage of the near zero interests to borrow money enable to do buybacks and mergers & acquisitions.

But majority of them never really share their record profit cash flows back to their important worker bees who does most of the heavy lifting. That is unfair to most of the public as they are financially in a pinch these days. Needless to say, Bank of Japan has not been very effective in creating inflationary policies to significantly improve the socioeconomic side of the spectrum.

In my view, BOJ seems to have an unofficial dual mandates. One is to create policies in connection with inflation matters. The other, that most retail mentality individuals are not aware of is the mandate of price stability. You see, from as institutional mindset point of view, price stability is also very important in regards to the inter-connectivity of market forces and price dynamics.

This is where Kuroda's methods been tolerably yielding. You see, Bank of Japan plays a significant role in the price stability arena by globally coordinating indirectly with other major central banks such the Federal Reserve in the US, Bank of England, and the European Central Bank.

Just as when the FED, ECB, BOE, BOJ and other developing countries central banks where coordinating their QE programs to preserve and synthesize some type of rescue plan, they also warrant disposition of QE tapering which eventually lead to exit their ballooning balance sheet.

FED is slowly leaning towards normalizing rates because of the changing shift of market theme dynamics regarding the expectancy of the current US administration's fiscal stimulus to kick start the global recovery. While the ECB, BOE and BOJ have still work do to before following the US lead in raising rates, this should keep the lid on the bond markets liquidity crunch.

So the role BOJ (as well as ECB) plays in the US interest rate market, and global interest in general in the last few months is Kuroda-san's QE program. This policy entails pegging the interest rate on their 10-year government bond at or near zero. It has been the anchor on global interest rates since they adopted the plan in September 2016. And as there has been growing momentum in the global economy, there has been speculation that the BOJ may signal an end to that policy.

That now looks less likely to be anytime soon. With Mr. Kuroda's reappointment as the BOJ governor as well as new deputy known as an advocate for bolder QE, the zero rate 10-year yield policy in Japan should continue to keep a lid on the global benchmark 10-year US treasury bonds.

This is important for a full time personal, private institutional macro fundamental investor and technical intrinsic value-based trader like me who trades and invest through forex futures ＆ spot, options, bonds, stock indexes, ETFs, commodities, precious metals and real estate. The deeper the liquidity, the better since 7-8 figure voluminous transactions are not as easy to enter and exit out of trading positions. Of course you can still trade through thin liquidity but its challenging putting on big sizes as I do.

As for the global markets turmoil in general, whenever you hear the MSM or as I call them propaganda centers because they always have an agenda to promote or market and almost no longer report impartial facts. Gone are the days of unbiased reporting of journalist like Seymour Herch. There is probably only one I can think of these days who is actually a real reporter, someone like Sharyl Attkisson.

Anyways as I mentioned before about mainstream talking heads like a famous economist on TV or a CEO or an official or someone famous who comments about markets in general especially when it's negative, I would recommend to take anything they say with a grain of salt. They are smart in their own field but only get paid to talk and usually nonsense and very bias. There are so many intelligent geniuses that can talk so intellectually on this planet but almost none of them are consistently, profitable traders.

So many people can talk eloquently with pretty sounding words but when you tell these people to actually personally trade their own money with the markets, almost all likely will fail to be consistently profitable day in day out, weekly, monthly, quarterly or annually depending on time-frame and investment horizon.

You can listen but do not take their comments that serious regardless of their status because trading the markets is designed statistically for only less than 1% who are winners and the rest are... you know the answer to that. Another reason is that arguably it's probably the highest paid career and the most independent, self-reliant way to earn income by competing with smartest, brightest people and most sophisticated robotic algorithms in the world in a zero-sum environment. Survival of the fittest at its finest.

99% of people do not know beyond the actual deep, inner workings of market mechanics and the its global connectivity dynamics. 99% only sees it as a chaotic up and down crap that do not make sense. Same goes to fact checking website about markets, they so basic that most of the stuff the so called market experts write about; only, maybe a percent of the realities of the market dynamics are covered.

Its impossible to quantify and qualify the psychology of the collective market participants, big boy players like central banks, sovereign wealth funds, hedge funds, insurance companies, pension funds and other commercial institutional players. Even behavioral, psychological or neurological studies have proven to be ineffective to explain the phenomenon of market dynamics.

Because logic in markets rarely applies as someone in the name of John Maynard Keynes famous quote said once, “The market can remain irrational longer than you can remain solvent. The smartest people who excel in academics and as well as PHDs are almost always the crappiest traders. Lots of reasons such ego, too smart for their own good, pride, not humble enough, undisciplined, laziness, and many other psychological, emotional destructive habits and behaviors that are some of the barriers of successful trading and investing.

The last mini crash in the Dow and S&P, as well as the Nikkei and other global stock indices was an algo driven inefficient, impulse move. There was heavy volume but almost have very light negative delta which means a very big, big, big player or several big boy smart money participants wanted to buy more but at the time could not find any liquidity on the other side to match his/her/their sizing. Market makers, counter-party dealers, and liquidity providers didn't have enough capital size to match the market order from a particular player or some players.

So market makers and counter-party dealers have to withdraw their insufficient liquidity and then algos follow through to drive down the next order flow of liquidity block that could sufficiently equalize the big players orders. He/she/they then could accumulate more bids in order to buy more at better wholesale market rice. Probable reason to put in the big size was the expectation of the current US administration fiscal stimulus fundamentals for the economy to kick start. It did not look like a fear trade psychology traded by multiple big player entities because of the nature of the move in terms of delta.

It was a liquidity issue more than anything else mixed with technical correction aka profit taking as well as square positioning for smaller speculators and flushing out weak handed participants who chase retail pricing aka retail traders which fuel the high velocity of the inefficient downward impulse.

The big boys know better than to just crash the market on purpose with no macro fundamental reasons behind it. There is presently no credible evidence that current macro economic fundamentals points to recession. In fact, it's the opposite. The global recovery is in the very early stages of economic boom. Intermarket correlations on various global market charts tells it all especially in the energy and commodities sector.

So whenever there is a market crash with a 10-20 percent correctional dip attached to it, very explosive with fear mongering and doomsday flavor to it, and all the media saying it's the end, then it means it is time to reload and a gift to buy at discounted price. Totally still in the bull uptrend.

In other words, for most institutionally minded players, this a green light signal to move money out of bonds and into higher yielding or dividend paying instruments such as stocks. The flattening yield curve control that Kuroda-san is babysitting is another way of doing unlimited QE by buying theoretically infinite amount of JGBs to push yields back down to near or at zero. As a byproduct, it acts an anchor to other global market interest rates.

This is inflationary in a sense as it creates the illusion of wealth effect which is part of central banks intended purposes. This is fine and dandy, but the real big issue of this is a lot of companies both institutional and retail are borrowing money at really super cheap rates to buyback their stocks and do M＆As instead of investing back their profits to productivity and wage benefits.

Only real growth can be achieved through reinvesting in improving productivity and necessary workers benefits. This will create real inflation in Japan. This is the real issue that Kuroda-san must really face and coordinate with Abe-san with his infamous Abenomics arrows.

Good article.

The one up the top from Thomson Reuters was good too.