Chart of the Day - you've gone too far!
What parent hasn't had to say that at some point to a child regarding actions that, at first, were fairly benign but subsequently led to something broken - broken furniture, broken window, or maybe broken feelings. I know I have said it. I know my parents said it to me. Heck, my wife might have even said it to me.

Well, today, the BOJ said it to the market. I have pointed out all year long that the BOJ was actively trying to import inflation to its economy, taking the problem that plagues the US and Europe onto its own shores because after 30 years of deflation, it could use a little inflation. It did this by keeping rates pegged lower while others were hiking. The result of this was that the Yen would weaken. A weakening Yen had repercussions for fincl mkts. It would lead to a preference among leveraged accounts to borrow in Yen & then swap out. It would lead Japanese investors, whose massive savings fuel global mkts, to repatriate. It would lead to higher 10 yr US yields.

I have also pointed out how rising 10 yr US yields would hurt all mkts. It is the rate upon which we price all other assets essentially. It would lead to rising earnings yield on stocks which was another way to say lower P/E and lower stocks. A sinking Yen could sink all boats.

I also pointed out how the weaker Yen was leading to a weakening Yuan (RMB) in an Asian FX war. Bottom line, what started as something fairly benign had proceeded to the point where things were breaking.

Last night, the BOJ yelled 'Now you have gone too far!' It intervened in the FX mkts to strengthen the Yen. As USD/JPY got near 146, a line in the sand was drawn. The pair immediately sunk to 141. The mkt was all leaning one way & had to react.

At the same time, S&P futures which were down over 40 handles rallied back 50 handles from being down over 1% to flat or up. CNY which had weakened to 7.095 strengthen to 7.07. 10 year US yields sank from 3.56 to 3.51. Heck, even Bitcoin rallied from below 19k to above 19k.

Time will tell if the children pay attention to the parents warning & actions or if they push the envelope a little more. WIll the BOJ's mettle be tested? I wouldn't be surprised. However, if there is a line in the sand for USD/JPY, this will have an impact on other fx pairs, it will have an impact on US yields. It will have an impact on other assets.

Stay Vigilant

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