QE is everything
In many corners of financial markets, you hear the same refrain: QE has skewed everything. The idea is that markets are completely controlled by central banks.
Well they certainly got some fodder today.
The report suggested only the slightest tweak to BOJ policy at the meeting at the end of the month. The idea is that they would ease up on QE buying in the short term simply because there aren't enough bonds left to buy. Instead, they would make the policy more flexible and that would make it more sustainable.
So this is hardly some kind of hawkish turn, especially since it's likely going to come alongside downgrades to Japanese inflation forecasts.
What happened? Japanese 30-year yields rose the most in two years, rising to 0.78% from 0.69%.
Kuroda was forced to deny it and the BOJ said it would buy an unlimited amount of 10-year notes at 0.11% as part of its yield curve control policy. That was only the fifth time the controls were implemented since they were enacted in 2015.
What was equally amazing was the scope of the moves globally:
- US 10-year yields up 6.6 bps to 2.96%
- German 10s up 4 bps to 0.41%
- Spain 10s up 7 bps to 1.38%
- Canada 10s up 5 bps to 2.23%
Those are some incredible moves with some modest justification. Plenty of people want to blame summer liquidity and maybe the Trump leak could have something to do with it, but any way you slice it, these are some troubling moves.
