Well, so much for the Bank of Japan’s Haruhiko Kuroda setting the negative interest rate the other day when he returned from Devos, Switzerland. Seems it only lasted for a couple of days as stocks have now unhinged from control by the central banks. For two days the Nikkei jumped as expected now it is down 19.7% from its earlier Abenomics high after the big negative-interest-rate two day party. Certainly hope all those pension fund investors tell the Japanese they better have some savings stashed away? The final summary on the negative-interest-rate party is:
“So for government bond markets, the message is clear: central banks that print their own money rule. And for stock markets, the message is even clearer, and very ominous: The power of central banks to inflate stock prices, or even just prop them up, is toast.”
The US Federal Reserve money wizards are probably contracting for six very high tech money printing presses with adequate amounts of paper right about now.
Source: Wolf Street
Negative-Interest-Rate Effect already Dead, Central Banks Lost Control over Stocks
by Wolf Richter • February 5, 2016
And there’s a bitter irony.
The Bank of Japan’s surprise Negative-Interest-Rate party for stocks set a new record: it lasted only two days.
Today a week ago, the Bank of Japan shocked markets into action. As the economy has deteriorated despite years of zero-interest-rate policy and Quantitative and Qualitative Easing (QQE) – a souped-up version of QE – the BOJ announced that it would cut one of its deposit rates from positive 0.1% to negative 0.1%.
Headlines screamed Japan had gone “negative,” that it had joined the NIRPs of Europe – the Eurozone countries, Switzerland, Sweden, and Denmark. But it was just another desperate move, a head fake, and once the dust would settle, the hot air would go out [read: QE in Japan Nears End: Daiwa Capital Markets].
Now the dust has settled and the hot air has gone out.
On Thursday, January 28, the day before the announcement, the Nikkei closed at 17,041 down 19% from its Abenomics peak of 20,953 in June 2015. Today, it closed even lower.
This situation is a bit of an embarrassment for the BOJ which has pushed Japanese asset managers of all kinds, including pension funds, particularly the Government Pension Investment Fund (GPIF), the largest such pension fund in the word, to get off their conservative stance, sell their Japanese Government Bonds which made up the bulk or entirety of their portfolios, and buy risk assets with the proceeds.
This they did, near the peak of the Abenomics bubble. While the BOJ was eagerly mopping up JGBs, the asset managers bought mostly Japanese equities, but they also bought global equities and corporate bonds. And the mere prospect of all this buying, the front-running by hedge funds, and then the actual buying drove up Japanese stock prices in 2014 and early 2015. The bet seemed to work out. Wealth had been created out of nothing. A few more years of this, and it might actually resolve the Japanese underfunded pension crisis.
Then the party stopped, and Japanese stocks swooned. In the second quarter of fiscal 2015 (June through August), the most recent report available, the GPIF lost ¥7.9 trillion, or 5.6%!
It was its first quarterly loss since 2008 during the Financial Crisis. Its decision to yield to the pressures of the government and the BOJ to plow into Japanese stocks, global equities, and corporate bonds, when they were at the peak, has turned into a fiasco.