Maasaki Shirakawa Bids Adieu Early

BoJ governor Maasaki Shirakawa evidently is no longer interested in being associated with the inflationist 'rescue' plan hatched out by Japan's prime minister Shinzo Abe. Shirakawa was originally slated to retire in April, but has now decided to call it a day a few weeks earlier.

This news item has once again pushed the yen lower, but this time the Nikkei Index failed to rise in reaction to the further decline – perhaps a warning sign?

Bloomberg reports:

Bank of Japan Governor Masaaki Shirakawa will step down on March 19, almost three weeks before his term was due, accelerating a leadership transition that may aid Prime Minister Shinzo Abe’s campaign for aggressive easing.

Shirakawa, 63, will exit the same day as two deputy governors, he told reporters in Tokyo yesterday. He was scheduled to leave on April 8. Japan’s currency slid after the comments, adding to losses against the dollar since Abe’s administration took office in December on a platform of greater monetary stimulus and a reversal of yen strength that has hurt export competitiveness.


“It’s the equivalent of waving a white flag for unconditional surrender,” said Shuichi Obata, senior economist at Nomura Securities Co. in Tokyo. “Shirakawa didn’t share the the government’s view that the central bank is responsible for ending deflation.”


“There was no pressure at all from the government, this was my own decision,” Shirakawa told reporters last night after a meeting with Abe, saying it was not an act of protest. He said he made the decision yesterday so that the central bank’s new leadership could start together.

The short-list to replace him is probably composed of Asian Development Bank President Haruhiko Kuroda and former BOJ Deputy Governors Kazumasa Iwata and Toshiro Muto, according to Masaaki Kanno, chief economist at JPMorgan Securities Japan Co., who used to work at the central bank, writing in a note last month. “The appointment of the next governor and deputies will be at the top of the government’s agenda now,” Kanno said yesterday.


The central bank may be set for “a really fundamental policy shift,” said Richard Jerram, chief economist at Bank of Singapore Ltd., who has analyzed Asian economies for two decades. “When you have three new people in charge, they basically start from scratch.”

While the central bank last month announced plans for Federal Reserve-style open-ended asset purchases, they aren’t due to start until January 2014. The deputy governors leaving are Kiyohiko Nishimura and Hirohide Yamaguchi.

“Shirakawa’s resignation will likely push forward the timing of bold monetary easing action,” said Akito Fukunaga, chief rates strategist at RBS Securities Japan Ltd. in Tokyo, a unit of Royal Bank of Scotland Group Plc.

Abe’s sway has highlighted the risk of an erosion of the BOJ’s independence, with the biggest opposition party signaling that Abe could face resistance in getting his nominee for governor confirmed in the Diet.”


(emphasis added)

Unfortunately the opposition can do absolutely nothing to stop Mr. Abe, as he enjoys a 'supermajority'. We happen to believe that Mr. Fukunaga is correct: the upcoming leadership change will very likely  “push bold monetary easing action forward”. We will then see how much of this is already discounted in the yen. As we have frequently pointed out in these pages, Japan's true money supply growth remains very low and has even been decelerating in recent months. So far only perception is pushing the yen down – the move is as of yet not supported by reality. One can actually not accuse the BoJ of not trying to inflate. However, the banking system is not interested in increasing credit and evidently demand for credit among potential borrowers remains subdued as well. Below are a number of yen charts, including a speculator positioning update and the most recent Elliott-wave update by our friend PN:






The yen has continued to weaken in the wake of Shirakawa's announcement – click for better resolution.




A long term chart of dollar-yen puts the recent move in perspective – click for better resolution.




Speculators continue to hold a massive net short position in yen futures. We wouldn't be surprised if this came back to bite them (readers may recall that something similar happened with the euro, which we also pointed out at the time) – click for better resolution.



Finally, here is a recent Elliott wave count update of the yen by our friend PN:



Yen (wave count)

Wave count of the yen – is a sharp rebound in the offing? PN not unreasonably warns that a market in a 'crash wave' type move can sometimes just continue to plunge,  caution is therefore advised – click for better resolution.





Gold in Yen

Gold in yen terms – up and away – click for better resolution.






BoJ governor Maasaki Shirakawa: calling it quits earlier than planned.

(Photo credit: Ko Sasaki)




Charts by: StockCharts, Sentimentrader, Barcharts



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3 Responses to “Shirakawa Has Had Enough”

  • JasonEmery:

    <<Lastly, the COT showed the commercials to be net long (yen) over 50% of the open interest on the dollar/yen trade. This is an amazing statistic. Heading into expiration, this could be the mother of all squeezes.<<

    Interesting analysis. The monetary metals have held up fairly well, even with this Yen weakness. A huge Yen rally will probably send gold in the direction of $1800/oz…………..

  • I have been playing the yen and euro lately. The Euro rarely rallies when the yen isn’t falling and visa versa. Something tells me that now that we have reached the fork in the road where the Euro is looking a little long of tooth in rally and the political landscape isn’t so pretty that we might just see the yen rally against the Euro, forcing the yen shorts to cover. The shorts have basically flooded the world with yen substitutes, thus weaking it against all comers. Thus a short on the yen against the Euro transposes to a short of the yen against the dollar indirectly. This is merely a theory arrived at by watching the two currencies for a couple of months now.

    What is odd in a credit system is that the Central banks flooding the banks with unnecessary funds might actually be deflationary in a strange manner in that the banks have more assets that don’t produce a return. Thus their margins get squeezed and they have to charge more, not less on loans to stay in business. In a low rate environment, this means they may actually not take risks they would have otherwise taken. Is there a banking system more loaded with central bank funds than Japan’s? Is the world down to what didn’t work last time is tried over and over again?

    Lastly, the COT showed the commercials to be net long (yen) over 50% of the open interest on the dollar/yen trade. This is an amazing statistic. Heading into expiration, this could be the mother of all squeezes.

    • roger:

      Steen Jakobsen of Saxo Bank also shares your sentiment towards a stronger yen. The following is his most recent comment on Japan:

      “I think – that in Japan the easy part is over: Talking is cheap – which the crisis in Europe and US have been proof but ACTUALLY doing something in the most traditional society in the world is impossible furhtermore Abe only goal is to win the Diet election in July”


      The second clause of his insight is especially interesting. If indeed the goal is to win that little election, then probably they’re going to revert back to the original policies (a relatively conservative one compared to other parts of the developed world) after being ensured a win. After all, it’s been their policy for two decades. It’s not easy to flip that in a heartbeat.

      Furthermore, there must be Japanese elites close to Abe/Aso who warn them against this because if their planned inflationism goes too far -even if just a little- there is a significant chance the whole society is going to crumble under a bond market crisis.

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