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Bank of Japan’s Balance Sheet Bigger Than Nation’s GDP

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Harushiko Kuroda
  • Bank of Japan’s Balance Sheet Bigger Than Nation’s GDP

The Central Bank of Japan has become the first among G7 nations to own assets collectively worth more than the country’s entire economy, following a half-decade spending spree designed to accelerate weak price growth.

The 553.6 trillion yen ($4.87 trillion) of assets the Bank of Japan holds are worth more than five times the world’s most valuable company Apple Inc. and 25 times the market capitalisation of Japan’s most valuable company Toyota Motor Corp..

They’re also bigger than the combined GDPs of five emerging markets — Turkey, Argentina, South Africa, India and Indonesia.

Central bank data released on Tuesday showed how much the BOJ has amassed over 5-1/2 years of what it calls “quantitative and qualitative” easing policy.

The BOJ has become the world’s second central bank after the Swiss National Bank and the first among Group of Seven countries to own a pool of assets bigger than the economy it is trying to stimulate.

Japan’s nominal gross domestic product for the April-June, the latest data available, was an annualized 552.8207 trillion yen. The reading for July-September, due on Wednesday, is expected to show a contraction after natural disasters.

While some analysts credit its unique policies with lifting the economy out of decades of deflationary pressures, the BOJ has had little success meeting its two percent inflation target or reviving domestic demand and growth.

Some investors see the BOJ’s inflation target as too ambitious and one that has forced it to keep buying a massive amount of bonds and stocks even as other major central banks have started to remove crisis-era policy accommodation.

At the same time, the aggressive asset purchases in recent years now mean the BOJ owns about 45 percent of the 1 quadrillion yen Japanese government bond (JGB) market, crowding out banks and other investors.

“The Bank of Japan’s policy is clearly not sustainable. The BOJ would suffer losses if it would have to raise interest rates to, say, two percent,” said Hidenori Suezawa, a fiscal analyst at SMBC Nikko Securities. “Also, in case of emergencies, such as a natural disaster or a war, the BOJ won’t be able to finance government bonds any longer.”

The BOJ’s assets started ballooning when Governor Haruhiko Kuroda took the helm at the central bank in early 2013, vowing that such steps would boost Japan’s inflation to two percent in two years.

That inflation target has proved elusive, barring a brief spike in prices after a sales tax hike in 2014.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Markets

A Wild 24 Hours

Stock markets aren’t faring too badly on Thursday, which is arguably surprising considering how eventful the last 24 hours have been.

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Traders Wall Street

By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

Stock markets aren’t faring too badly on Thursday, which is arguably surprising considering how eventful the last 24 hours have been.

It’s hard to know where to start on a day like today. While the Fed’s hawkish rate hike is probably the dominant driver in the broader markets, the dangerous nuclear threats from the Kremlin are causing quite a stir and then there’s the small matter of Japan’s first FX intervention in 24 years which has triggered some huge moves in the yen.

Fed resists the urge

The Fed’s decision to hike by 75 basis points, despite the obvious temptation to opt for a full percentage point, was probably sensible given the scale of tightening we’ve already seen this year. It now expects to go further with rates, with markets pricing in another 125 basis points this year and 25 next, although as we’ve seen throughout the year, that will probably change as we get more data. In much the same way that investors got too excited by the July inflation data, it may prove to be the case that the August setback isn’t as bad as feared. In such uncertain times, overreaction is becoming the norm.

Japan finally intervenes as BoJ stands firm

The Bank of Japan is standing firm on its policy stance, despite the widening differential with the US and others. That has put considerable pressure on the currency this year, so much so that the Ministry of Finance completed its first intervention in 24 years as the yen neared 146 against the dollar. The move on the back of that was quite something and it may not be the last. Interestingly, the level the pair reached was only a little shy of that in 1998 when it last intervened, prompting further speculation about whether this is the unofficial line in the sand. That has been denied but the rate check also occurred around 145 so perhaps there is more to it than just volatility. It will be interesting to see how keen traders are to put that to the test in future.

BoE continues with conservative approach

The Bank of England raised rates by 50 basis points today; a move some may view as a little conservative under the circumstances. Of course, that’s an accusation that’s been levelled against the MPC a lot this year as it proceeded with 25 basis point hikes while others were accelerating them. But without the benefit of new economic projections and details of tomorrow’s mini-budget, the decision is that much harder as was evident from the vote split. Perhaps the BoE will regret passing up another opportunity to ramp up the pace of tightening, with inflation now seen peaking just below 11% in October and remaining in double-digits for a few months after. But with the economy potentially already in recession, the Bank – like many others – finds itself between a rock and a hard place.

CBRT keeps cutting despite soaring inflation

One central bank that isn’t concerned about the consequences of its actions is the CBRT. It cut rates by another 100 basis points today despite inflation sitting above 80% which sent the lira to a new record low against the dollar. You have to wonder what it will take for the central bank to accept that its experiment – at the worst possible time – has failed but clearly, we’re not nearly at that point. More pain to come, it seems.

Franc slides as SNB hikes by 75 basis points

The Swiss National Bank hiked rates by 75 basis points today which was at the lower end of expectations. The franc tumbled in the aftermath of the decision, slipping more than 1.5% against the dollar, euro and pound. That’s despite Chair Thomas Jordan hinting at more to come including potentially at an unscheduled meeting, should conditions warrant such action. He also suggested that FX interventions could take place as necessary – which is obviously a hot topic today – while also stressing that the stronger franc has actually aided the fight against inflation.

Oil rises amid more nuclear threats

Oil prices are rising again on Thursday after giving up initial gains a day earlier. Nuclear threats are increasingly becoming the norm from the Kremlin but energy prices remain very sensitive to them. Still, crude isn’t trading too far from the six-month lows and another round of aggressive tightening around the world today won’t be helping, as economic fears continue to weigh on demand prospects. A move below those lows – around $86-88 in Brent – could signal much gloomier economic forecasts and frustrate OPEC+ which has stated it could announce further output cuts, even before the next scheduled meeting.

Choppy trading in gold as the dollar pares gains

Gold has been quite choppy since breaking below $1,680 last week. It has fluctuated largely between here and $1,650 since then and even briefly moved above in the aftermath of the Fed decision. Even today, it slipped back towards the lower end of that range but has since recovered back to the upper end as the dollar has erased gains. Perhaps that’s a sign of a floor appearing, with the market now having priced in a large amount of tightening. I’m not convinced at this stage as the break of $1,680 appeared very significant but time will tell. A pull back in the dollar could certainly facilitate such a recovery in gold.

Bitcoin seeing strong support

Bitcoin is managing small gains after slipping earlier in the day. Once more, it slipped back towards $18,000 where it ran into some support. With the summer lows around $17,500 just a little below again, this is a huge test for bitcoin and cryptos overall. If risk appetite doesn’t improve, that support is at risk of breaking, with further support then potentially appearing around $16,000.

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Energy

D.Light Launches Solar Products in Nigeria to Transform Lives of Low-Income Individuals

D.Light has officially launched into the Nigerian market to transform the lives of low-income individuals

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Renewable Energy - Investors King

D.Light, a pioneering manufacturer and provider of Solar products has officially launched into the Nigerian market to transform the lives of low-income individuals.

This expansion into Nigeria is coming after the company secured a $50 million investment some months ago to better focus on the renewable energy space and support its expansion in Africa.

Speaking at the launch, Co-founder and President Sam Goldman said “The reality is that we are still so far from where we need to be in terms of our population and their needs.

“Hence our target market is the low-income individuals; not just the rural communities which is why the company adopts the ‘pay-as-you-go” model. Access to sustainable energy will not be possible unless we solve the funding problem.

Also speaking about D.light’s mission in Nigeria and across the globe, the chairman of the board, Mrs. Ibukun Awosika stated that the company seeks to transform the lives of a lot of people on earth, as well as bridge the gap to ensure inclusiveness for everyone.

Her words, “Our vision is to change the lives of billions of people on the face of the earth who are crying for equity to have a chance to live a better life.

“We are in Nigeria to transform Africa one community at a time, and this is our driving force she said”.

The co-founder and CEO, Ned Tozun explained that d.light has employed over 6,000 people across Africa.,

He said, “Our target is lower-income individuals. There is a sun in the village and the cities, so when we just say a rural market, it is not.

“The guy who lives in Lagos, but doesn’t have a generator shouldn’t even use a generator if he can have a solar solution. Why? Because of environmental sustainability.

“So, when you think about all the ESG matters, you will encourage more people to use alternate sources of energy rather than polluting sources of energy and that helps everywhere; whether you are in the city or the village. It is about lower income.

“What we’ve done is to think of the entire problem chain. Firstly, innovate the product. Two, how do you deliver it? Deliver it to them at the most reasonable price. Thirdly, make sure it’s affordable for them”.

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Crude Oil

Crude Oil Pulls Back to $91 a Barrel on Monday

Despite the strong U.S. dollar and slowing demand for crude oil, the price of the commodity pulled back on Monday during the New York trading session.

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Crude oil - Investors King

Despite the strong U.S. dollar and slowing demand for crude oil, the price of the commodity pulled back on Monday during the New York trading session.

Brent crude oil, against which Nigerian oil is priced, pulled back from $88 a barrel to $91.52 at 5:31 pm Nigerian time. While the U.S. West Texas Intermediate oil pared losses to $84.75 a barrel, up from $81.65 it traded in the early hours of the day.

The price of the commodity traded lower in the early hours of the day on concerns that central banks will raise interest rates to curb inflationary pressures, a move expected to further hurt demand for crude oil and support the U.S. Dollar’s attractiveness to foreign investors.

“Ideas that continued rate increases will slow world crude demand and keep upward pressure on the U.S. Dollar is triggering long liquidation in both crude and natural gas this morning,” said Dennis Kissler, senior vice president of trading at BOK Financial.

While the pullback may not last given a series of factors impacting the outlook of the commodity, supply remained tight and will continue to dictate prices for the remaining part of the year, especially with the Organization of Petroleum Exporting Countries and allies led by Russia, known as OPEC+ still struggling to up production.

The cartel fell short in August, missing its target by 3.583 million barrels per day (mbpd) following a 2.892 mbpd missed in July.

“The market still has the start of European sanctions on Russian oil hanging over it. As supply is disrupted in early December, the market is unlikely to see any quick response from U.S. producers,” ANZ analysts said.

However, the gradual easing of COVID-19 restrictions in China, the largest importer of the commodity, may help bolster prices.

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