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Weston Nakamura

@acrossthespread

May 9

🇯🇵Japan At War With Markets:
Anatomy of Yentervention Week

Last week-

Mon: USDJPY > 160
🇯🇵MOF shots fired, $JPY ↓ to 155

Thurs: post-FOMC Powell
🇯🇵MOF (at 🇯🇵5am) hits $JPU ↓ again

By end of week, ¥9tn of JPY buying for -5% on USDJPY

Why is it not working?

Here’s why🧵

Need to analyze the various actors, instruments (spot FX, futures etc), flows & behaviors involved

1/
🇯🇵MOF

At 1st glance, seems MOF yentervened Mon, & then further 🇯🇵Thurs AM right after Powell press conf - i.e. 1 continuous effort

But I think these were 2 independent acts:

•Thurs post-FOMC likely was premeditated & market-unconditional yentervention that was going to happen anyway

•Mon was a reaction to markets as USDJPY cracks 160 (vs 155 on AM of prior trading day - BOJ Friday)

This difference matters because it changes how we/MOF themselves look at Law Of Diminishing Effects (LODM) with yenterventions.
IF Thurs post-FOMC was indeed pre-planned & Mon was forced defense, then:

LODM for TIME INTERVALS (each yentervene act lasts for less time until next) wouldn’t apply here, where ‘22 yenterventions had 1 month between each in Sept & Oct, vs 4 days between 2 yenterventions last week, because the premeditated chronology. That’s not to say LODM for time doesn’t exist (I think it does), but just means it doesn’t apply under this schedule-dependent, market-unconditional approach assumption.

But - LODM for SIZE/AMOUNT (each yentervene act requires more ¥ buying / $ selling to achieve same result of -¥5 big figure drop in USDJPY) would NOT be contradicted here either- as Mon yentervention was estimated ¥6tn vs ¥3tn Thurs - i.e. Thurs got ~same -¥5 drop but at ½ the cost. Does this mean each successive yentervention costs LESS each time? Of course not - & this premeditated post-FOMC may be the explanation:

Trading liquidity profiles to be able to absorb blasting USD in spot market + market focus/awareness is much higher for Mon mid-Asia hours vs end of NY close after Powell steps off podium, when markets are way more caught-off-guard (& doesn’t matter if Mon was 🇯🇵 “holiday” - USDJPY 155 → 160 in 2 days means all FX traders everywhere are at desks)

And if Thurs was surgically pre-planned, vs Monday was reactive to a shock 160-print, then Mon execution was more so done in an indiscriminate “spray and pray” manner, in which the BOJ market operations desk would call up the institutions to blast USDJPY at 1PM, and then also telling those dealers to “stand by… may not be done here quite yet…”

So, instead of the previous clip, likely was more along the lines of this👇

2/
Also, seems Monday MOF meddling activity may very well have seen yenterventions occur in 2 clips:

🇯🇵1PM
&
🇯🇵4PM

First of all it’s clear on the charts what a yentervention market blasting looks like: sudden, instantaneous, multi-handle straight vertical line down.

Because who in the hell else shorts tens of billions in USD against an otherwise 1-way ↑ market, & just as momentum acceleration is kicking in- and then unleashing THAT type of tennis ball directional whack execution style?

Only non-economic actors who are not PnL minded, but instead, are market-impact minded.

Then, look at the arc of recovery of USDJPY after the first of 2 shots taken on Monday, in comparison with the bounce after Thursday’s.

Mon clearly looks like a far more immediate and resilient market bounce-back, likely due to the aforementioned time of day + after-Powell catalyst complacent market liquidity profile differences.

So it seems fairly clear that MOF acted twice on Monday from that perspective alone, and may also explain why Mon cost 🇯🇵MOF 2x more vs Thurs

Why does this distinction matter?

Because as more yenterventions take place (more data samples added) there is a potential consistency that may be starting to emerge:

Acts of yentervention when done on “🇯🇵MOF’s terms” may cost as low as ~¥3tn (Thurs), but when done as a forced immediate reaction to combat markets in real time, cost can be ¥5-¥6tn (Oct ‘22 & Mon last week) or more

Goldman estimates 🇯🇵MOF FX reserves at ~¥30tn. So if we very conservatively assume each yentervention price tag stays constant going forward, MOF basically has 5 or 6 of these left before dipping into selling USTs/other assets.
That’s not at all to say that’s how it will go down (‘22 yenterventions didn’t see change in FX reserve balance, indicating other assets sold) - just putting some general context around capacity

Read 8 tweets

Weston Nakamura

@acrossthespread

Jan 23

🇯🇵”BOJ” Market Review-

Bulletproof 🇯🇵 equity rally finally cracks in 🇯🇵PM session after BOJ policy release

BUT..

Has nothing to do with BOJ

Rather, 🇯🇵market sharp intraday -1.4% drop is due to 🇨🇳China’s latest attempt to rescue their sorry market

🧵 Heres how this happened👇

1/
First of all-

BOJ policy was unchanged, & in-line with unanimous expectations

No shock & awe widowmaking, no early Nikkei press-leaking fuckery (& no late-wait release either), policy released at noon during AM & PM sessions with plenty of time to “digest” a no-change, before PM trading begins

BOJ was extremely nothing, just as consensus had expected

So regardless of what actually caused NKY to crash at an arbitrary time in the PM session, one thing we can eliminate from the list of possible causes that shook up 🇯🇵 equities is the Jan BOJ policy release.

NKY is +10% “YTD” (in the 13 trading days of Jan’24), & opened nearly +1% up today for yet another new multi decade high in the AM OF BOJ DAY.

Clearly NKY is moving completely independent of what BOJ is/isn’t doing / not doing / expected to do / not do, and has been for… like.. 7~8 years? Certainly for the last 2 years of massive outperformance.

Yet, that’s clearly not what’s going on out there in market commentary land (Japanese as well as English)- people are trying to force-fit some BOJ story into the behavior of green & red blinking tickers

🤡

2/
If we look at other markets ex-equities, we’ll see this nothingness reflected accordingly

JPY and JGBs, aside from the standard knee-jerk flash move upon release, were relatively calm and rangebound on low trading volume, as 🇯🇵rates & FX markets just waited out the rest of the session until Ueda’s press conference

And if we look at DM equities ex-🇯🇵 (🇺🇸SPX, 🇦🇺ASX), they too are unfazed accordingly. In fact, 🇺🇸SPX remained calm in part BECAUSE correlated JPY futures remained calm - as per my previous post & article on how the “yen trade” is actually SPX, not NKY👇

https://x.com/acrossthespread/status/1745746751359996065?s=46&t=Rl0FBLHJQGPCMJOtha6zxQ

Read 7 tweets

Weston Nakamura

@acrossthespread

Feb 14, 2023

Things to note ahead of 🇯🇵BOJ Gov official nomination to succeed Kuroda expected ~🇯🇵11am (soon)

1/ I don’t care if I’m the only voice, NOR if Kaz Ueda ends up being nominated- I’ll just keep repeating:
THERE IS NO BOJ GOV NOMINEE UNTIL PM KISHIDA

Regardless of who it is/not..

2/
DO NOT read to deep (if at all) to the immediate market reaction, including any LACK of

Not (just) because NOBODY knows WTF they’re talking about regarding “___ person → ___ BOJ policy” (yes 100% very much including me)

But because of 2 potential mkt move catalysts coming

3/
🇯🇵BOJ has a 5yr funds-supply op today (it’s new tool to cap targeted JGB yields)

Note- this op was announced on Fri- the same day as this “Ueda ← BOJ Gov” Nikkei article

May be coincidental - or, may be BOJ expects a JGB sell off on announcement day for “whatever” reason

Read 6 tweets

Weston Nakamura

@acrossthespread

Jan 25, 2023

🇯🇵BOJ fires off its newly updated YCC sidearm weapon against JGB sellers without having to directly buy JGBs from Jan MPM

& finds success as JGB yields collapse (& thereby DM yields ↓)-for now

So WTF is this 🇯🇵BOJ “Funds-Supplying Operations against Pooled Collateral”
(thread)

https://twitter.com/Bank_of_Japan_e/status/1615539504747810818

2/
The announcement of this Funds-Supplying Operations against Pooled Collateral went somewhat under the radar from the int’l community among the BOJ Jan 18th MPM releases, in part due to the intense level of focus on “YCC no change”

Yet it’s a critical tool for BOJ keep YCC’ing

https://twitter.com/Bank_of_Japan_e/status/1615539504747810818

https://twitter.com/acrossthespread/status/1613908635025035268

3/Background
Dec’22 MPM- BOJ widens YCC trading bands on 10Y JGB 0.25%→ 0.5% to try & fix JGB curve & mkt functioning IN ORDER to CONTINUE YCC/EASING- & NOT to tighten

But this backfires-YC shape worsens, & BOJ ends up buying record JGBs:
¥2.8t till Dec end & ¥10t in 2 days Jan

https://twitter.com/acrossthespread/status/1613908635025035268

Read 17 tweets

Weston Nakamura

@acrossthespread

Jan 16, 2023

🇯🇵JPY (USDJPY) price action explained (thread)

Many questions on ¥, especially- why is ¥↑ (& so aggressively) since BOJ’s Dec’22 YCC shock?

1/
Indeed, ¥ has undergone a sharp reversal after being worst major FX vs $ in most of ‘22:
USDJPY
Start ‘22 115→ 152 high→128 curr

2/
First, need to look at WHY JPY was crushed to 3 decade lows (USDJPY→ 3 decade highs) over ‘22 in the first place

Short ¥ (or long USDJPY, abbreviated as “$¥” from here forward) was THE global macro trade in ‘22, & in part a “🇺🇸Fed Trade”

A very profitable trade, but crowded

3/
Why was short ¥ a Fed trade?

Rates traders typically use short-term rates (Eurodollar futures & options) to bet on where Fed Funds rates will be & when
But huge uncertainty w/ Fed policy (reflected in front-end rate implied volatility↑) made such outright bets more difficult

Read 25 tweets

Weston Nakamura

@acrossthespread

Jan 12, 2023

https://twitter.com/business/status/1613373206408175621

🇯🇵HEADS UP: BOJ PRESS TEST

🇯🇵Yomiuri News today: BOJ to review neg side effects of its outsized JGB buying policies at next week’s Jan MPM, implying further tweaks to YCC after/despite Dec MPM shock

¥↑, ¥ implied vol↑
JGB 10Y yield >50bp cap
JGB futures↓ to 9yr low

(Thread)

https://twitter.com/business/status/1613373206408175621

1/
Why this is BOJ Press Test in my view:

🇯🇵targeted, isolated clean(est) mkt read before 🇺🇸CPI takes over mkts

(“Press Test” ←BOJ use of media to “leak” potential policy ∆s ahead of MPMs to watch mkt reaction, which unlike official policy statements, can be taken back)

2/
BOJ Dec MPM shock YCC∆ was done for market stability/functionality, fixing (un-ruining) JGB yield curve, distortions in futures mkts etc

Since then, BOJ has had to conduct fixed rate ops (unlimited buys) on 2Y & 5Y JGBs for 1st time ever, while 10Y pressed at new 50bp cap

Read 8 tweets

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