Or perhaps just an accelerant. Much was made of the Bank of Japan's historic decision to engage in massive QE, as BOJ governor Kuroda said at the press conference...
"This is an entirely new dimension of monetary easing, both in terms of quantity and quality."
He wasn't kidding and the market, although already knowing he was an uber-dove, I believe was shocked. This is a radical departure from Japanese economic policy and other than emergency measures in 2008, this is the largest move in Japanese monetary policy and it's not short term like 2008, it is a very specific change in course.
Kuroda's ambition is to double the BOJ monetary base within less than two years. A significant rise in Japanese JGBs (much like out 10-year Treasuries) means Kuroda's strategy failed. We saw a surge in JGBs last week, Thursday night and in to Friday morning at 3:45 a.m., I was watching the Yen trade because this was that important, here's the last post before I felt it was safe to stop watching...
"Yen looks to be under control... For Now" posted at 3:45 a.m. Friday morning after watching it all night Thursday and in to the early hours of Friday a.m.
Kuroda is doubling down and will spend over 40% of Japanese GDP on the new QE, something the Financial Times called, "Unprecedented Monetary, BIG BANG"
Japan's Bond market (debt) is 240% of GDP, the highest debt among all developed nations. Kuroda plans on buying 70% of that debt within the next 2 years. A fall in JGB's price will send the Yields skyrocketing, this will mean Kuroda's gamble went terribly wrong and losses would almost certainly do serious damage to the BOJ's balance sheet and credibility.
Pimco's Bill Gross believes the currency debasement in the Yen may be so drastic that other G7 countries will not tolerate it, I have already made clear that the Chinese will not tolerate it and mentioned it recently (Mid-March) in the flair up over the Senkaku Islands, here's the post.
The point is, we are most definitely off the map here and with the world's 3rd largest economy. If falling JGB prices are a sign that Kuroda's gamble failed, then Friday's action on the Tokyo exchange is very scary, JGB futures were halted for trading as they went limit down in the biggest price collapse in 10 years.
I said Friday morning that the Yen that looked to be on the verge of a rally higher (not good) was finally under control, but I have no idea of how long they can keep a lid on it, things don't look good and while in the very short term BOJ intervention may have halted the Yen, (besides having the G&, and especially China looking to do anything they can to sabotage the BOJ's policy,), the BOJ itself may have done it themselves in going to far based on Friday's action and these 3C charts of the Yen.
This is the Yen Single Currency future, the dramatic drop in the Yen is what the BOJ wanted and was a result of BOJ QE policy being announced, the small bounce was when JGBs went limit down in the biggest drop in 10 years, this is the night I watched the Yen until 3:45 a.m. when I finally felt the BOJ had got the situation under control as a rapidly rising Yen could have disastrous repercussions for even the US Equity markets. However, I am not convinced the strategy is safe from backfiring on the BOJ, several 3C charts from last week raised concern even as I posted at 3:45 a.m. Friday morning that it looked like the BOJ got a handle on the situation for now.
This is the Yen on a 1 min 3C chart with the start of new FX trade for the week at the green arrow, notice the positive divergence in the short term Yen chart suggesting some upside.
However this more important 5 min chart which also shows the negative divergence (distribution) in the Yen in the hours leading up to the BOJ policy announcement as I had mentioned last week (someone knew something obviously which wasn't a hard guess), then note the positive divergence that sent the Yen higher at the green arrow, this is the same time JGBs went limit down and halted trading and the yellow arrow is about when I posted that I believed the BOJ got the situation under control,,, FOR NOW and the Yen headed lower, but note the positive divergence now is even stronger as it is leading at a new high while the Yen is at a lower low.
The 15 min chart is proof there's migration of the positive divergence as it too is positive going in to the new week and was late last week with the red arrow showing the 3C action before the BOJ announcement.
Although the 30 min chart also shows migration of the divergence, it has not yet reached the hourly chart, if it continues, I'd bet the BOJ went too far and lost control and a violent swing upward in the Yen and downward in the market could happen at almost any moment, we'll see how much power this divergence has as we see if it builds to the 60 min chart.
Currencies open the new week looking like there's some support for pairs that support the market, like EUR/USD...
Although the EUR/USD opened the new week's trade with a gap down, I believe it will see some strength based on the single Currency futures in the Euro and the $USD.
The USD/JPY gapped up, for now if the BOJ can hold this pair together, this is supportive of the short term move up we are looking for in the market, of course what I explained above could bring a sudden black swan as it relates to Japan.
This is the Euro 1 min chart with a positive divergence building suggesting some near term strength will develop. This strength would be supportive of the market so long as the $USD shows weakness.
The 5 min Euro chart shows weakness from late last week coming in to the open this week, but since opening trade for this week, small positive divergence has developed. I suspect from the looks of the $USD short term, this will strengthen more.
US Dollar Index Futures 1 min show strength off a positive divergence late last week, but are in a leading negative divergence since trade opened for the new week, this would tend to confirm the Euro futures above.
USDX 5 min chart also shows a leading negative divergence in the new week, as early as it is.
USDX 15 min chart shows the negative divergence that got this pullback in the USD underway in red and a very slight positive late last week that is probably the reason for the small gap up on opening FX trade.
As to Market Index futures, so far they look pretty much as expected, short term strength and after, a larger move to the downside.
ES 5 min shows a negative divergence in opening trade and a positive divergence now developing, this fits with the recent divergences in the Euro and $USD.
ES 60 mn for the longer term view shows ES(SPX futures) to be in a negative divergence and in line with 3C.
NQ 1 min (NASDAQ 100 futures) shows a positive divergence developing, again in line with Euro, USD and ES trade and 3C signals.
NQ 15 min (I'm trying to give you different timeframes for flavor without overwhelming you with all the indexes in each timeframe) also show a relative positive at last week's low and a leading positive in to the open of new trade for the week tonight. This tends to support our short term expectations.
TF (Russell 2000 futures) also show a positive divergence forming now in to the opening of futures trade for the week, after an initial slight negative sending TF a little lower; confirming everything above.
TF 15 min has a positive divergence, again fitting with the averages seen in 3C for the IWM, SPY, DIA, QQQ, etc and in line with short term expectations for the market.
However the most important of the charts here is the 4 hour showing the larger underlying trend in TF, from a positive divergence sending it higher in November to a deep leading negative divergence suggesting as we have seen for some time, distribution in to higher prices.
See you in a few hours.
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