Saturday, May 21, 2016

RISK OFF: The Last Leg Of The Monetary Stool Just Folded

Bolstering risk markets this past week was a counter-trend rally in the Dollar / Yen. However, late Friday, that reversed sharply on news that the BOJ is mulling its exit strategy...

"It's going to put some risk into the weekend unless we get a swift rebuttal from the BOJ."

Currency intervention is becoming a geopolitical hot topic - basically this red line:
BOJ balance sheet (red) with USDJPY:

ZH: May 20, 2016
The issue is not the losses, since they could just write them off against their fake balance sheet. The issue is the mere contemplation of selling down of Japanese Government bonds back into the market place, or even just a cessation of buying.

Forex Live: May 21, 2016
There's nothing like dropping a bombshell late on a Friday. It's taken a while for the news to circulate and we're now seeing USDJPY drop to 110.15 from above 110.40...
It's going to put some risk into the weekend unless we get a swift rebuttal from the BOJ.

Wait, there's more to this story...just today, the G7 wrapped up another circle jerk, at the end of which U.S. Treasury Secretary Jack Lew further berated the Japanese for Yen intervention:

ZH: May 21, 2016
"the United States issued a fresh warning to Japan against intervening in currency markets on Saturday, as the two countries' differences over foreign exchange overshadowed a Group of 7 finance leaders' gathering in the Asian nation."

"It's important that the G7 has an agreement not only to refrain from competitive devaluations, but to communicate so that we don't surprise each other,"

"Hence, the US - and thus global - position is that only if the USDJPY is plunging by a few thousand pips in any given day does the BOJ have permission to intervene"

We need not expect JPY to be bid next week: