Further pressure on BOJ and the Yen
In previous MacroSlate reports, Japan has been at the front and center of discussion and controversy regarding its fiscal and monetary policy.
On October 28, Japan’s CPI inflation rose to 3.5% (YOY) for October, a 31-year high, making life more difficult for the BOJ. The yen sank to a 32- year low against the U.S dollar ¥152 before another round of intervention from the BOJ.
The ten-year JGB yield remains firmly at .25%, but the long end of the yield curve remains unsupported and continues to climb to almost a ten-year high.
Japan Long End Yield Curve: (Source: TradingView)USD/JPY: (Source: TradingView)
The U.S dollar is up 29% against the Japanese Yen so far in 2022. However, it has been more complex than you might think. The BOJ has thrown $50bn at the JPY to defend its peg, but it doesn’t seem to be doing much good. The above chart highlights where the BOJ has conducted their intervention; back in September, they used $20bn, and on Oct. 21, BOJ used $30bn. Japan currently has $1.2T in currency reserves. Will they continue to deploy resources and continue to witness the failed YCC experiment a failure?
To quantify this experiment, the BOJ has 24 more shots of $50 bn twice a month for one year, and then they’re out of ammo.
China is in a spot of bother
Chinese economic data got published the week commencing Oct. 24, while President Xi Jinping achieved a power grab extending his tenure for an unprecedented third term. The yuan continued its slide against the dollar, 7.3 and climbing. The worst daily decline for Hong Kong-listed Chinese stocks since 2008, coupled with a 7% collapse of the HSCEI index.
The Chinese real estate market continued its crisis as it still wrestled with covid lockdowns. Real estate collapsed a 29% drop in property sales for year-to-date compared to the same period as last year. However, China will not be able to achieve full-year GDP growth of 5.5%, as they stall at just under 4%.
The Chinese property market is the largest asset class in the world, $62tn, which dwarfs all other asset…