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Japanese Traders Are Getting Angry: “The BOJ Is Destroying The Functioning Of The Market”

04.04.2016 Tyler Durden 0

Back in the summer of 2014, when the ECB first unveiled NIRP, many were concerned that this submersion into the monetary policy twilight zone would first crush Europe’s money markets. However, at least until now, European MM funds have proven relatively resilient,

The story in Japan is different.

When the Bank of Japan announced they were instituting NIRP back in January, they intended to spur lending and push inflation up. As often is the case with central planners, their academic theory was much different than the economic reality.

Money market has fallen off a cliff in Japan, and the freeze in short-term credit markets can be solely attributed to the BOJ’s negative interest rate policy. So far, in a contrast to the financial crisis, activity is frozen simply because brokers are having a hard time pricing and processing transactions as opposed to concern over counterparty risk (for now). Firms have capital to sustain this short-term freeze at the moment, but the break in this market is certainly something to keep a close eye on.

This sums up the sentiment in Japan: “Among central banks, the BOJ is the one that destroys functioning markets the most,” Izuru Kato, the president of Totan Research in Tokyo was quoted by Bloomberg.

Companies will slash staff and scale back operations where activity is grinding to a halt, exposing markets to spikes in rates when the time comes for normalization.”

What normalization?

As Bloomberg shows, the interbank call market hit a record low at the end of March.


As the BOJ continues to push on the NIRP string, the list of unintended consequences grows by the minute. Outside of the short term credit freeze and complete inability to set borrowing costs, there are more concerns starting to bubble up. Banks may be preparing to lay off workers due to the lull in transactions, which won’t help their wage and inflation issues. Traders are simply trying to front run BOJ asset purchases as a way to earn profits, as the rest of the “market” is eroding – which is spilling over to banks of course, as their inability to make money lending forces them to turn to a buy & sell to the BOJ model for profits.

We’re not sure what other unintended consequences will show themselves over the coming months, but one thing is certain: The BOJ losing control, or perhaps it already has.

Finally, we can’t help but wonder just how much of Japan trader anger is the result of the Nikkei crashing 1000 points since Yellen’s dovish appearance, one which seemingly shifted the balance of monteray power away from Europe and Japan (and their surging currencies) to benefit China by way of a weaker dollar. How long before Kuroda is forced to re-escalate once again in the increasingly more anguished global currency wars?

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Saudis Retaliate To “Oil Freeze” Fallout: Ban Transport Of Iranian Crude In Territorial Waters

04.04.2016 Tyler Durden 0

At first, when it announced the terms of its “oil freeze” agreement with Russia one month ago, Saudi Arabia seemed willing to grant Iran a temporary exemption from the supply freeze, at least until it recovers its pre-embargo production levels. That however changed on Friday when the country’s Deputy Crown Prince Mohammed bin Salman, shocked Saudi Arabia’s Arab allies in the Persian Gulf, telling Bloomberg his country would only join the freeze curbe Iran – and all other OPEC member nations – also joined.

Following the Friday announcement, yesterday Iran’s oil minister Zangadeh made it clear that the country rejects Saudi demands, and would continue ramping up production at will, in the process making the April 17 Doha meeting meaningless.

And then, in a new and unexpected retaliation by Saudi Arabia for Iran’s intransigence, moments ago the FT reported that Saudi Arabia has taken steps to slow Iran’s efforts at increasing oil exports, banning vessels that transport Iranian crude from entering their waters, according to traders and shipbrokers.

More details from FT:

Iranian vessels carrying the country’s crude are restricted from entering ports in Saudi Arabia and Bahrain, according to a circular sent by a shipping insurance company to its members in February.


The notice said ships that have called to Iran as one of its last three ports of entry will also require approval from the Saudi and Bahraini authorities before entering their waters. Shipbrokers and traders have relayed the same messages since.


Iranian oil executives have expressed their concern about the message circulating in the market, saying it is only adding to problems they face in selling their crude.


Saudi Aramco, the state oil company, and The National Shipping Company of Saudi Arabia (Bahri) did not respond to requests for comment.

It is not clear just how much of an impact this escalation will have because as shown in the map below, Saudi territorial waters are hardly a major factor in Gulf shipping lanes.

However, considering that Iran already faces insurance, financing and legal obstacles despite the lifting of sanctions linked to its oil industry in January, and considering the amount of clout the Saudis have with financial partners, its attempt to make Iran’s oil production more difficult will surely reap at least partial success.

Indeed, as the FT adds, oil tanker association Intertanko and other industry participants say no formal notice has been given by Saudi Arabia but uncertainty is making some charterers less willing to lift Iranian crude.

”It’s seen as an unknown risk,” said one shipbroker. “No one wants to disrupt their relationship with the Saudis.”

As a reminder, the amount of oil being stored at sea off the coast of Iran has risen by 10 per cent since the start of the year, data from maritime data and analytics company Windward show, and now stands at more than 50m barrels.

But what is perhaps far more troubling for Iran is that on Friday president Obama criticized Iranian leaders for undermining the “spirit” of last year’s historic nuclear agreement, even as they stick to the “letter” of the pact.

According to the Hill, in comments following the Nuclear Security Summit in Washington, Obama denied speculation that the United States would ease rules preventing dollars from being used in financial transactions with Iran, in order to boost the country’s engagement with the rest of the world.

Instead, Obama claimed, that Iran’s troubles even after the lifting of sanctions under the nuclear deal were due to its continued support of Hezbollah, ballistic missile tests and other aggressive behavior.


“Iran so far has followed the letter of the agreement, but the spirit of the agreement involves Iran also sending signals to the world community and businesses that it is not going to be engaging in a range of provocative actions that are going to scare businesses off,” Obama said at a press conference.


“When they launch ballistic missiles with slogans calling for the destruction of Israel, that makes businesses nervous.”


“Iran has to understand what every country in the world understands, which is businesses want to go where they feel safe, where they don’t see massive controversy, where they can be confident that transactions are going to operate normally,” he added. “And that’s an adjustment that Iran’s going to have to make as well.”

And so a new potential bullish catalyst for oil emerges: If Obama’s anger grows, and if the Iran agreement is ultimately unwound, that would mean that all of the excess oil brought on market by Iran, would promptly be taken off the market once more, in the process eliminating the supply glut overnight.

It remains to be seen if Obama is ready to sacrifice his foreign “legacy” just to boost the price of oil, and thus, gas at the pump. Then again, considering over the weekend Goldman made a huge U-turn on the “low oil is good for the economy”, and if Obama’s advisors start whipsering in his ear how higher oil prices are critical for US energy companies, that may be precisely what ends up happening.

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Iceland PM Refuses To Resign, Faces No Confidence Vote Following “Panama Papers” Scandal

04.04.2016 Tyler Durden 0

As reported last night, one of the first politicians to suffer a career casualty will probably be Iceland’s prime minister Sigmundur David Gunnlaugsson, who was exposed by the Panama Papers as secretly owning a company called Wintris set up in 2007 on the Caribbean island of Tortola in the British Virgin Islands, to hold investments with his wealthy partner, later wife, Anna Sigurlaug Pálsdóttir.

The moment when he realized the data had been made public was revealed in this striking interview, during which the PM walked out, saying “What are you trying to make up here? This is totally inappropriate.”


The Iceland public appears to agree with at least the second part of his assessment, if only as pertains to his secret financial dealings and as Bloomberg reports, the PM now faces a no confidence vote. “The opposition has called for a vote against the government as parliament begins its session at 3 p.m. local time, though it’s still unclear whether the vote can be held on Monday. Protests in Reykjavik organized by a Facebook group calling for “Elections Now!” are due to start two hours after the opening of the assembly.”

The outcome of the vote appears almost certain: “I hope that Sigmundur David realizes the seriousness of this matter and has the decency to resign before parliament convenes today,” Birgitta Jonsdottir, a lawmaker for the Pirate Party, said on her Facebook page on Monday.
A March MMR poll showed that Jonsdottir’s political group is now Iceland’s biggest with 37 percent of voters backing it, compared with 36.2 percent for the ruling coalition of the Independence and Gunnlaugsson’s Progressive Party. Still, the premier’s coalition holds 40 of the seats 63 in parliament.

He has so far not resigned, and to the contrary the premier has tried to defend himself, writing on his website that “It’s been clear since before I began participating in politics that my wife had a considerable amount of money. Some people find that in itself very negative. I can’t do much about that because I’m neither going to divorce my wife nor demand that she relinquish her family inheritance.”

Bloomberg adds that his wife’s holdings also included bonds in the three failed banks, whose collapse in 2008 brought the country to its knees and triggered the imposition of capital controls. Gunnlaugsson’s judgment is now being questioned since he had been in charge of negotiations with the creditors as part of an effort to exit capital controls.

What is curious is that in this particular case there may be no actual wrongdoing: according to the ICIJ report, Palsdottir says she has always paid all her taxes owed on the Wintris account, which was confirmed by her tax firm, KPMG. That, of course, assumes the auditing firm is telling the truth.

“As has been explained publicly, in establishing this company, the Prime Minister and his wife have adhered to Icelandic law, including declaring all assets, securities and income in Icelandic tax returns since 2008,” a Gunnlaugsson spokesman said in a statement to the ICIJ.

Which goes to the fundamental question behind tax havens: is one guilty until proven innocent simply for having an offshore shell, whether disclosed or not.  As Bloomberg notes, “offshore holdings can be legal, though documents show some banks and law firms failed to follow requirements to check their clients are not involved in crimes.”

A breakdown of all uses, from the legitimate to the illegal is shown below (courtesy of Fusion).


In the case of Iceland’s prime minister, we may get the answer as soon as this afternoon.