Australian dollar leaps on BOJ disappointment

It may be hard to believe but the Bank of Japan just disappointed markets with its announcement that it target 2% inflation and print another $2 trillion Yen to buy everything in sight. From Bloomie:

The Bank of Japan set a 2 percent inflation target and said it will shift to Federal Reserve-style open-ended asset purchases in its strongest commitment yet to ending two decades of deflation. The central bank will buy about 13 trillion yen ($145 billion) in assets per month from January 2014, including about 2 trillion in Japanese government bonds and about 10 trillion yen in treasury bills.

The Yen is rallying and Nikkei is down hard, the euro and Aussie have jumped:

Maybe markets expected more. Maybe the 2014 timetable is too far away. Maybe it’s just “sell the fact”.

39 Responses to “ “Australian dollar leaps on BOJ disappointment”

  1. China-Bob says:

    Looks to me like it is time to abandon the good ship Oz_manufacturing, the rudder is stuck, the engine room is flooded and Capt’ Glenn is presumed washed overboard after venturing out to inspecting the decks.

    So far we have dogged Chinese torpedoes negotiated a monstrous storm near Club-Med but now we are stuck in the middle taking deck gun fire from both sides as the US and Japan refight the battle of midway.

    • Jack says:

      It might be more of a Kamikazi effort , the good ship Australia manufacturing cops one in the bridge. What else do we have in the fleet.

      • Revert2Mean says:

        Hey, DLS, how about some truly “macro” commentary, instead of the second-to-second Oz economic minutiae?

        Davos call for $14trn ‘greening’ of global economy

        Why is there no environmental economics commentary from any of the bloggers? Ever.

        Get with it, guys!

      • I’ve deleted your reply!

      • Revert2Mean says:

        Nice to be compared to female genitals by “an experienced business media hack”. Charming. Whatever… :roll:

        “Anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist.” –Kenneth E. Boulding

        How many economists here are of this school?

        We’re facing an urgent, growing crisis in the environment. Barely gets a head nod here.

        “… we are going to evolve through crisis, not through proactive change.” Dennis Meadows, co-author of the Limits to Growth report published by the Club of Rome 40 years ago, speaking in 2012

      • China-Bob says:

        Frankly I’d love it if a environmental economy existed, but it doesn’t!

        All the talk about carbon pricing / trading and green economics have achieved considerably less than China’s direct intervention in the support of PV and wind manufacturing. Without this focused manufacturing development effort, PV and wind costs would still be an order of magnitude greater than coal. Yet today we are on the verge of pricing parity. Seems to me that the rest of the world needs to forget their financial/political ecogames and follow China’s lead by simply building their eco-manufacturing capabilities.

      • flawse says:

        Chinese investment in Thorium research is a monster! They’ll be decades ahead.

      • China-Bob says:

        @3d1k
        How do you find these sites? So much gibberish on one page I wouldn’t even know where to start correcting, factually wrong on so many points.

        If anyone really wanted green electricity in Australia then they would take most of the $29B the NSW alone id deploying for transmission infrastructure and invest it in distributed PV technology. At current rates this would translate into about about $12GW of peak electricity capacity. If this is coupled with deeply embedded storage technology then most of the new transmissions lines are unnecessary.

        Of course this wont happen because the merit-order-effect of PV would permanently kill the coal business.

      • vonZetty says:

        3d1K please don’t disappoint me. You seem like a smart guy but quoting from a site like that doesn’t do you any good.
        Below is an excerpt from Scientific American “A Plan to Power 100 Percent of the Planet with Renewables” and here is the link if you want to read the whole article:
        http://www.scientificamerican.com/article.cfm?id=a-path-to-sustainable-energy-by-2030&page=4

        Our plan calls for millions of wind turbines, water machines and solar installations. The numbers are large, but the scale is not an insurmountable hurdle; society has achieved massive transformations before. During World War II, the U.S. retooled automobile factories to produce 300,000 aircraft, and other countries produced 486,000 more. In 1956 the U.S. began building the Interstate Highway System, which after 35 years extended for 47,000 miles, changing commerce and society.
        Today the maximum power consumed worldwide at any given moment is about 12.5 trillion watts (terawatts, or TW), according to the U.S. Energy Information Administration. The agency projects that in 2030 the world will require 16.9 TW of power as global population and living standards rise, with about 2.8 TW in the U.S. The mix of sources is similar to today’s, heavily dependent on fossil fuels. If, however, the planet were powered entirely by WWS, with no fossil-fuel or biomass combustion, an intriguing savings would occur. Global power demand would be only 11.5 TW, and U.S. demand would be 1.8 TW. That decline occurs because, in most cases, electrification is a more efficient way to use energy. For example, only 17 to 20 percent of the energy in gasoline is used to move a vehicle (the rest is wasted as heat), whereas 75 to 86 percent of the electricity delivered to an electric vehicle goes into motion.
        Even if demand did rise to 16.9 TW, WWS sources could provide far more power. Detailed studies by us and others indicate that energy from the wind, worldwide, is about 1,700 TW. Solar, alone, offers 6,500 TW. Of course, wind and sun out in the open seas, over high mountains and across protected regions would not be available. If we subtract these and low-wind areas not likely to be developed, we are still left with 40 to 85 TW for wind and 580 TW for solar, each far beyond future human demand. Yet currently we generate only 0.02 TW of wind power and 0.008 TW of solar. These sources hold an incredible amount of untapped potential.
        The Plan: Power Plants Required
        Clearly, enough renewable energy exists. How, then, would we transition to a new infrastructure to provide the world with 11.5 TW? We have chosen a mix of technologies emphasizing wind and solar, with about 9 percent of demand met by mature water-related methods. (Other combinations of wind and solar could be as successful.)
        Wind supplies 51 percent of the demand, provided by 3.8 million large wind turbines (each rated at five megawatts) worldwide. Although that quantity may sound enormous, it is interesting to note that the world manufactures 73 million cars and light trucks every year. Another 40 percent of the power comes from photovoltaics and concentrated solar plants, with about 30 percent of the photovoltaic output from rooftop panels on homes and commercial buildings. About 89,000 photovoltaic and concentrated solar power plants, averaging 300 megawatts apiece, would be needed. Our mix also includes 900 hydroelectric stations worldwide, 70 percent of which are already in place.
        Only about 0.8 percent of the wind base is installed today. The worldwide footprint of the 3.8 million turbines would be less than 50 square kilometers (smaller than Manhattan). When the needed spacing between them is figured, they would occupy about 1 percent of the earth’s land, but the empty space among turbines could be used for agriculture or ranching or as open land or ocean. The nonrooftop photovoltaics and concentrated solar plants would occupy about 0.33 percent of the planet’s land. Building such an extensive infrastructure will take time. But so did the current power plant network. And remember that if we stick with fossil fuels, demand by 2030 will rise to 16.9 TW, requiring about 13,000 large new coal plants, which themselves would occupy a lot more land, as would the mining to supply them.

      • The Lorax says:

        China-Bob: A dose of reality?

        Oh fuck. Please not that again! Do you ever tire of posting the same shit over and over?

        Nicole Foss is a peak oil doomer. She’s hardly advocating more rapid consumption of fossil fuels. Her view is that renewables won’t cut it, so therefore we’re screwed.

        Lift your game mate. If I was paying your salary I’d expect better than this.

      • Rusty Penny says:

        I does remind me of how the priorities of generations differ.

        Once, everyone’s financial interest shifted aside, to put the brightest minds together and it was called the ‘Manhattan Project’.

        Not talking about the quality of the goals, just ‘this is the highest moutain to climb, and there is a degree of urgency based on the environment of today’.

        Over $5 trillion has been spent int he war on terror, which is essentially a war against an islamic pan-arab movement. A conflict taht if we had the same moral guidelines of the 1940′s, it would end within 30 days.

        There is no way the middle east could resist.

        However, if we recognise we also only are required to open up lines of communication with the middle east due to one resource, and ini the absence of it, they’d be a even sh*ttier Bhutan, they’d present no harm.

        $5 trillion spent on alternative energy solutions in 12 years since 9/11.. how long did the Manhattan Project take?

        What a waste.

      • 3d1k says:

        Von Zetty/China Bob! I’ve been happy enough with much of Foss’s analysis in the past and as she is from the Oil Drum side of the debate, if she argues need for a renewables reality check, I’m going to listen at least.

      • 3d1k says:

        ps von Zetty – Foss also provided analysis of rare earth consumption needed for turbines, was criticised by another reader here at MB, but guess what, a paper prepared by (can’t remember but link is on MB somewhere – turbine manufacturers) indeed confirmed that vast quantity required. She is nothing if not a realist on this subject imho.

      • GSM says:

        3d1k,

        Enviroeconomists struggle when it comes to the math of their ideals. You will find that line of argument (reality) very hard going indeed. Or, a rich vein perhaps?

      • Revert2Mean says:

        3d, neodymium is the main rare earth in turbines.

        Mostly due to its incredibly lax environmental policies, China currently produces more than 95% of the global supply of rare earth oxides. That has caused huge swings in pricing of these various strategic elements.

        However, with other nations holding large REE reserves – including Malaysia and the U.S. – beginning to expand production and refine the metals, an international exchange will be necessary to facilitate proper pricing. While it could take years to do and China may not participate, the increasing demand for these high-tech elements will almost guarantee it.

      • 3d1k says:

        vonZ – I just had a look at the comments for the article, many from seemingly informed parties pretty much destroy the view presented by the article authors mostly along the lines of Foss’s critique.

      • johnyaku says:

        Rooftop solar PV is already taking the edge of peak electricity demand on really hot days, and therefore reducing the need for massive capacity upgrades to the distribution network, which has been the major reason for price rises.

        http://www.weatherzone.com.au/news/power-demand-down-despite-record-heatwave/23311

      • flawse says:

        Well people on the good ship rural industry got the fire from all sides and took a lot of friendly fire from its own battleship to boot. The crew of the good ship manufacturing cheered as it took the hits then celebrated in the gathering of whatever cheap flotsam could be found amongst the wreckage.

      • China-Bob says:

        Fortunately Oz-Manufacturing has kept some powder dry because in any permanent race to the bottom Australia has its proven secret weapon the Collin’s class sub. I’m thinking it is definitely time to send in the submariners.

      • Bob Sickle says:

        Well we already have our own version of the Opium Trade – willing in all those Chinese buyers into our RE market to help keep up appearances.

        I wonder what happens when the addiction wears off.

  2. DrBob127 says:

    ” in its strongest commitment yet to ending two of deflation.”

    ending two days/months/years/decades of deflation?

    I’m thinking decades

  3. Bob Sickle says:

    Well not much left except high house prices and AUD on steroids.

    Looks like we are lagging the field in the global race to the bottom, which in itself does not bode well for our economy.

    Running on empty ?

    Another bug in search of a windscreen ?

  4. myne says:

    CTRL+A
    CTRL+B
    CTRL+N
    CTRL+P

    *Excerpt from the Central Bankers handbook edition 6 (C) 2013.*

  5. 3d1k says:

    Might be time for an AUD and what to do, if anything, post.

  6. Ben says:

    “The Yen and Nikkei are down hard”

    Your chart shows Yen rallying hard.

  7. Pfh007 says:

    Have they said who the BoJ will be buying the bonds from?

    There seems to be an assumption that they will be copying the Fed and buying them from banks and hoping to force down interest rates and stimulate debt and in combination with some public works (pork) generate economic growth etc etc.

    I couldn’t see any explicit statement that they intend to restrict themselves to that orthodox approach but perhaps that is just considered given.

    But considering they say they want to increase inflation to 2% at the earliest possible time and they have struggled in the past to achieve this with orthodox measures perhaps they have something more aggressive in mind.

    http://www.boj.or.jp/en/announcements/release_2013/k130122a.pdf

    Interesting times.

  8. flawse says:

    Gets my seat in the grandstand, complete with popcorn for when/if they actually hit 2% inflation! The whole process will be like a super- dragster ‘touching’ his brakes near the end of his record run.

  9. MJV says:

    The back of my envelope tells me this is roughly 5 times bigger than QEternity, adjusted for GDP. Remarkable.

    Unless Japanese savers are willing to accept increasingly negative yields on their government bonds, I can’t see how this will end well. If they succeed in stoking inflation, they will necessarily need to print in order to prevent yields rising. From memory one quarter of Japanese government revenues are allocated to paying down principal and interest on debt, split roughly 50/50 between the two. A small rise in yields will be terminal. I would have thought this effect would have been far more menacing than deflation. I guess they have faith in the BOJ’s ability to hold yields down in the face of rising inflation, or the absence of any other options for Japanese savers. Fascinating times.

  10. Bob Sickle says:

    The AUD may have leapt, however over the last day or so our collective IQ’s have plumetted;

    http://www.theage.com.au/lifestyle/life/two-flat-whites-and-a-bawling-child-please-20130121-2d2xc.html

    900+ comments (the coffee snobs are vociferous)

    http://www.theage.com.au/opinion/politics/i-have-an-opinion–always-have-and-always-will-20130121-2d39n.html

    700+ comments (don’t ya love Kochie ?)

  11. Ortega says:

    China General:

    Australia, don’t side with Japan!

    “American hegemony is not at its dawn and not at its zenith,” he said. “It is at its sunset and night is coming.”

    Read more: http://www.theage.com.au/world/shun-us-tiger-and-japanese-wolf-chinese-colonel-warns-20130122-2d52d.html#ixzz2Igk4du5k

    http://www.theage.com.au/world/shun-us-tiger-and-japanese-wolf-chinese-colonel-warns-20130122-2d52d.html

    • Pfh007 says:

      He said Australia should play the role of a ‘‘kind-hearted lamb’’

      No fear on that front, our leaders have been serving us like well dressed lamb for decades.

  12. Sweeper says:

    2% is not high enough.