All Out Currency War and a Nation's Future at Stake

Few seem to realize what a decision the BOJ made and how many spider web cracks across the thin glass pane known as the global economy that the F_E_D has been so worried about lately, still few wonder why the F_E_D is so concerned about their part in this spider web cracking is-a-vis the $USD.

Earlier I posted some comments from an ECB insider that the F_E_D is already warning the ECB today about QE/Euro devaluation on the same day as the Bank of Japan set in motion further Yen devlauation.

For some perspective beyond the GPIF's (Japanese Pension Fund) decision to cut exposure to Jpanese bonds from 60% to 35% and selling these in to one of the thiinest major bond markets  (as noted, over the past year days have gone by without a single trade) and what's really at stake in this controversial decision and that's the right adjective, according to Saxo Bank's chief economist, " the vote was a narrow 5/4. This is extremely unusual as big decisions like these are generally only done with full consensus, but it clearly shows Abenomics is running out of time"

Via Bloomberg:

"The (Japanese) central bank is already the largest single holder of Japan’s bonds, and the scale of its buying could fuel concerns it is underwriting deficits of a nation with the heaviest debt burden. The BOJ could end up owning half of the JGB market by as early as in 2018, according to Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo.

“Kuroda knows when to go ALL in,” Okubo wrote in a note. “The BOJ is basically declaring that Japan will need to fix its long-term problems by 2018, or risk becoming a failed nation.”

From SocGen's Albert Edwards, September 2014:

"We have felt for some time that a fragile Chinese economy could be pushed over the edge by a further yen devaluation – in many ways a replay of the Asian crisis of 1997. And just as the Chinese real economy data has taken a turn for the worse in August, the yen has slipped below a key 15-year support level against the dollar. This is probably the most important chart investors should focus on. The next phase of global currency wars may have begun.

We have written previously that Japan's QE and the associated yen weakness could trigger a re-run of the 1997 Asian crisis, only this time sucking in the Chinese renminbi. The yen has just broken below a key long-term support and after a brief technical pull-back, its decline is likely to accelerate. This will trigger a wave of profit-crushing deflation flowing from east to west. 

The Chinese economy will see a further rise in its already strong real exchange rate, especially if other Asian currencies are pulled down with the sliding yen. This will hurt the Chinese economy which, from August data, appears to be weakening again. The strengthening renminbi will also exacerbate deflationary pressures further.

Second, a weak yen spells trouble for the west as a wave of deflation washes in from the rapidly devaluing east. This reverses a decade long trend. I believe that profits growth is so anaemic in the west that this monetary tightening via strengthening exchange rates could in itself be sufficient to send US and European profits into outright decline and subsequently their economies into recession (via a contraction in the investment spending). 

And now...

"ECB money printing will never be able to compete with Japn. The euro might be going down v the dollar but it will be going up against the yen

(There's) Little understanding (by traders)  how, not only will eurozone be going into recession and deflation but that Germany will be the weakest economy in zone. Once Germany’s budget deficit starts to rise sharply as a result of their recession the new mad balanced budget act will kick in and they will be cutting spending aggressively. Expect the eurozone to disappear down a black hole!"

From John Hussman of Hussman Funds:

"Longer term, we continue to view present market conditions as among the most hostile in history, coupling rich valuations with market internals that remain unfavorable on historically reliable measures. So allow for any sort of action in the near term, but recognize that from a full-cycle perspective, we continue to view a 40-50% market loss as having very reasonable plausibility over the completion of this market cycle."

I'll bring you more as the governments, Central banks, Global Central banks and organizations like the G7 start chiming in on what went down today, it's clear we are just starting to understand the far reaching consequences of Abenomics, a policy that has seemed doomed since the start.