Origin of Japan rout lies in Washington

Excelente artigo que ajuda a entender o comportamento do mercado no Japão nesta semana.


Japanese stocks have suddenly gone into reverse. Let us take a long view of a so far sharply short-term phenomenon.
Japanese stocks have been rallying for six months now, spurred by the radical new economic policies dubbed Abenomics. On Thursday the Nikkei 225, the main Japanese index, suffered a fall of 9.2 per cent in a matter of hours. This was its worst day since the dreadful earthquake and tsunami of 2011, and worse than any single day during the financial crisis of 2008. Amid great volatility on Friday, selling resumed, and at one point the Nikkei had fallen 12.3 per cent from its Thursday high, satisfying the usual definition for a correction – a 10 per cent sell-off. The Nikkei then recovered to end up for the day.
But the Japanese market had grown so far ahead of itself that this move probably should not count as a correction.
Even after Thursday’s fall, it still needed to drop another 7.2 per cent just to touch its 50-day moving average – the average of the previous 50 days’ closing prices, and a strong indicator of the short-term trend. For now, the trend remains emphatically upwards. When markets get so far ahead of themselves, it is no surprise that the first negative action can turn into a big sell-off.
But moves so sudden and drastic can have an impact on the animal spirits that move markets. On Thursday European stocks endured their worst sell-off since last July as they reacted to news from Tokyo. And while Japan may have been due a sell-off, the timing still begs an explanation.
That explanation lies partly within Japan itself. Yields on Japanese government bonds (JGBs) have been rising (as their prices fall). This implies that investors are gaining in confidence that Japan will shake itself out of deflation, but it also means that effective interest rates are rising. This could be a problem, especially when the Japanese are so used to cheap money.
In April 10-year JGB yields were only 0.33 per cent, betraying almost unfathomable confidence that inflation would never return. On Thursday, 10-year JGB yields very briefly ticked above 1 per cent. The stock market carnage ensued. But as the day wore on JGB yields and equity prices fell in tandem throughout the Tokyo day.
On Friday stocks fell sharply after Haruhiko Kuroda, the governor of the Bank of Japan, said it was “extremely desirable” for bond yields to move stably, and that the bank would try to head off volatility in the market. This raised fears that the bank will not press on with easy monetary policy if JGB yields rise fast.
The incident showed that bond markets have the ability, and often the will, to negate the hard work of central banks. But it may not be the best explanation for the Japanese sell-off. Rather, we need to explain why JGB yields leapt from less than 0.9 per cent at the opening of the Tokyo day.
And for that, we have to look to another central bank: the US Federal Reserve. Wednesday brought testimony to Congress by its chairman, Ben Bernanke. Then came a question-and-answer session, and then came the minutes to May’s meeting of the Fed’s interest rate-setting committee.
Only one question mattered: when will the Fed start removing the extraordinary stimulus it is administering to the US economy, with purchases of $85bn in bonds each month? This stimulus, known as quantitative easing, will continue indefinitely until it has sparked a recovery in employment.
There was nothing new in the printed testimony, which said that the job market remained “weak overall”. But in questions Mr Bernanke admitted that the Fed could start to taper back its bond purchases “within the next few months”, and the minutes then revealed that a “number” of Fed governors would be willing to start tapering as early as June. On the back of this, bond yields surged upwards on Wednesday, and stocks sold off.
It also weakened the dollar against the yen – and a weak yen has been key to Japanese recovery.
The market flap over the Fed was overdone. The minutes make clear that those wanting to remove stimulus now are in the minority, and even they require “evidence of sufficiently strong and sustained growth”. The majority view is that if the “weak” jobs market keeps recovering it may start to pull back from QE. But even that is not a promise. All of that is good for the stock market, for the time being.
What does all this imply? The vital question for markets is the Fed. At some point, it must start retreating from QE. It may well be able to do so smoothly. After all, it will not be doing so unless the US economy is improving.
But you do not have to be Cassandra to fear that the Fed exit could lead to a disorderly exit from treasury bonds. Such an accident could push up interest rates in a hurry and have ugly ripple effects throughout the real economy. It remains a real possibility, as this week’s events make clear.

John Authers

Fonte: FT