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Boj's Shirakawa Lowers Japanese Growth Outlook, Prepares For More Qe, Blames "mrs Watanabe" For Yen Surge

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It is one thing for sellside research, caught in its traditional lemming frenzy, to cut national GDP outlook. In the case of Japan the resistance to reality provide futile early on and based on the average of 43 economists' forecasts, economic growth is now expected to post a 0.22% GDP decline in Q1 and a whopping 2.83% in the April-June period. As had been predicted this is not surprising. What is surprising, is that the head of the BOJ, Shirakawa-san himself has now indicated that Japanese growth is stalling. Per the WSJ: ""We are now expecting production and GDP will decline in the first quarter and the second quarter," Mr. Shirakawa said in an interview on Friday. It is rare for the central bank governor to make such forecasts and is the first time that Mr. Shirakawa officially admitted the likelihood that the economy may shrink in the first two quarters of the year, in line with many private-sector economists' predictions." So for those wondering who will take the temporary lead in money printing in the brief period between QE2 and QE3, look no more: "given high uncertainties surrounding the Japanese economy, many analysts expect Japan's central bank to be eventually forced to take additional easing steps." And just how much money printing are we talking here? "The central bank currently buys ¥1.8 trillion of long-term JGBs every month from financial firms as part of its regular market operations. The bank's hands are tied by the so-called banknote rule, which limits long-term JGB buying to the amount of banknotes in circulation. But the central bank still has capacity to purchase around ¥20 trillion of long-term bonds, according to the central bank's latest account data." In other words, lots.


In a statement that puts Shirakawa's perception of reality starkly into question, also on Friday the BOJ head blamed the massive surge in the JPY in mid-March not on repatriation and heavy trading desk margin liquidation, but on, wait for it, Mrs. Watanabe.

In a rare reflection of wild currency moves following the March 11 earthquake, Bank of Japan Gov. Masaaki Shirakawa said it was not the widely anticipated selling of overseas assets by Japanese insurers, but rather moves by the Mrs. Watanabes that propelled the yen to an all-time high against the dollar.

In an interview on Friday, the BOJ chief said actions by investors engaged in margin trading—the favorite game among the herd of small Japanese investors represented by a mythical housewife, "Mrs. Watanabe"—were mainly to blame for the yen's rise to 76.25 against the dollar in the early hours of March 17.


Well at least he didn't blame CDS traders or Citigroup bond runs. And the explanation would have been wonderful if only there was not this one glaring fact to the contrary (read about this here).

So yes, even as the clueless finally accept reality, they unfortunately still remain clueless. But that is a key job requirement of any central banker it would appear.

So it would appear that it's the Japanese housewife is to blame for the increase in the Yen....

Good to know Japan will turn on the printing press at full steam to fix this problem. It's debt to GDP ratio will no doubt increase significantly.

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In the world of bonds, few things have perplexed investors as much as the ridiculously low (and going lower) rates of Japanese Government Bonds (JGBs), at last check yielding 1.22%. Granted "deflation" in Japan has long been quoted as the key driver for the ongoing decline in real and nominal rates, but in practical market terms it was always the fact that there was a buyer of first and last resort, usually this being either Japanese citizens directly or their proxy, the Japanese Government Pension Investment Fund (GPIF) that kept yields in check and sliding. No one has been following the story of the perpetually collapsing JGB yield better than SocGen's Dylan Grice (for the best overview of this issue we suggest: "Upcoming Government Funding Crises: Japan Edition"). And while as Dylan has pointed out before, the direct purchase of bonds by the population has slowed if not reversed entirely (and in the aftermath of the March 11 earthquake we are confident many have entered run off mode - we will attempt to confirm as soon as official fund flow data is released), the GPIF has always been a buyer of last resort. Until now. Reuters reports that the Kyle Bass pain trade, which has for so long gone counterintuitively, may be about to pay off in spade.

From Reuters:

Japan's public pension fund is planning to withdraw about 6.4 trillion yen ($78 billion) from its assets in this financial year to cover a shortfall in pension payouts, the Nikkei business daily reported on Sunday.

The Government Pension Investment Fund (GPIF) holds assets of about $1.4 trillion, larger than both the Canadian and Indian economies, and is a major force in the Japanese government bonds (JGB) market, where it parks two-thirds of its assets.

I wonder what will happen if there is a massive sell off of Japanese Bonds? Although the central Bank will probably end up buying them all. Just to avoid any collapse and panic, not that the market is ponzi.

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