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Most importantly and I concur with Kiuci is the limited ability for central banks to control interest rates but more importantly is the scary desire to control not only an entire market but the most important market to financial stability and economic growth.

All central banks are now trying interest rate control and each in their own unique money market system but other central banks are cutting ranges rather than forecast and implement wholesale changes as is the BOJ case. To control an interest rate contains drastically negative effects to an economy and restricts money flows, prices, loans, and the list goes on. A sharp climb in CPI for example would see interest rates rise and risk the Yield Control Program. A stasis price only sees a higher breakout potential later as pressure mounts on the price to move. Currently, the BOJ controls 40% of the JGB market.

Kiuchi's ally Takehiro Soto and second dissenting vote on the JGP program and tweak to policy proposals will be  replaced in July by Goshi Kataoka ( Marc Chandler). Soto's main argument throughout the program period is the distance from the Monetary Base to Inflation expectations are wide  and an unclear long run view. Soto's concern is JGB holdings may see a 10 year duration at negative interest rates. Further, is the unknown shape of the yield curve even upon program success.

At what point is the yield curve shape measured correctly against economic acceleration v deceleration. The consummate no vote by Soto was against the setting of long term interest rate targets especially when Inflation, GDP and interest rates sit at essentially 0. Soto favors setting short term targets and in line with current economic results. Higher Inflation for example would naturally result in setting higher short term interest rate targets. The Soto argument converges to Silvio Gesell in the Natural Economic Order. And I believe the Soto and Gesell arguments are the direction for future monetary policies, interest rates will follow CPI and price levels. The BOJ target overall is the interest rate rather than the Monetary Base and this offers a more market oriented approach.

Soto since 1999 was head of interest and fixed income strategy at JP Morgan Japan and came to the BOJ with 32 years of bank experience while Kiuchi was chief researcher at Nomura and also has 32 years bank experience.

The BOJ votes based on actual Minutes ran consistently 7 -2 and not 5-4 as was reported by others. A  5 -4  vote on overall  BOJ policy, interest rates or  policy changes hasn't been seen from 2012 to 2017.  This 5 - 4  figure is made up, thin air information. Kiuchi and Soto were lone dissenters in BOJ policy and Kiuchi was most pervasive while Soto came to dissention ranks shortly after appointment. Both were consistently outvoted meeting after meeting from 2013 to 2017. Kiuchi and Soto however were consisent in votes under Skirakawa and Kuroda.  

The idea an ideological divide exists on the BOJ Board as in Kuroda / Abe V Shirakawa appears as a specious and most dangerous argument. An ideological amalgamation would be seen if a BOJ appointment is from the Chiba Prefecture because that Prefecture includes Tokyo. One would then assume a political and economic meld  was placed on the board purposely to vote the political line rather than economic. Mayekawa was the last BOJ Governor from Tokyo and his term ran from 1979 to 1984. Tokyo was represented on the BOJ 4 times in 350 years of BOJ existence. What is seen on the BOJ Board is independence to vote and propose rather than political party line votes.

Further, GDP at 2% or better since 2008 was seen 7 times in 9 years or 7 times in 36 quarters.

BOJ Governors since 1882 hail from  Southern Japan and South of Tokyo. Of the 31 past Governors, all were represented by 9 of the total 47 Prefectures.

As Japan exits yet another " Lost Decade", it meets the challenge with another questionable economic program but this time they add wholesale change under questionable results. One false move or  one disaster would result in Japan lost for many decades. Since August 2016 Yield Control, JGB yields traveled higher from -0.29 to 0.16 while the US 10 year rose from 1.31 to 2.64.

Brian Twomey
author of
Inside the Currency Market: Mechanics, Valuation and Strategies
and
Using the Z Score to trade Foreign Exchange and Other Financial Instruments: The Step by Step

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