Dollar surge! (From "Shima Rikio's Practical Real Trade")

The dollar has risen more than I anticipated. I am thinking that we need to shift again toward an aggressively long posture in our strategy.

Chair Yellen's congressional testimony is more hawkish than last time. While not explicitly stated, it is believed to reflect policy changes expected under the Trump administration. December rate hikes are almost certain, and the dot plot announced at that time may (likely) shift to a somewhat more hawkish view.

More than anything, (probably) the impact came from the Bank of Japan's “pecuniary operations at fixed rates.” I was thinking while listening to Bloomberg Radio (the announcer was a little excited, too): in Japanese, writing it as “指値オペ” doesn’t seem impactful, but in English it is “Unlimited bond purchase at fixed rate,” and the announcer naturally emphasizes the “Unlimited” part. If ordinary Japanese people who aren’t usually interested in Japanese monetary policy hear it, it sounds like a dramatic policy.

Well, the above is half a joke, but the fact that the BOJ moved to fixed-rate operations fairly early was a “blow” for Japanese institutional investors such as life insurers, who hoped in this situation that the 20–30 year rates would rise and at least approach near 1%. When the introduction of “quantitative and qualitative easing with ultra-short-term rate operation” was implemented, many Japanese institutional investors and banks interpreted it as a shift to a de facto tapering policy. While trying to appease reflationists, they expected gradual tapering and consideration for the management of financial institutions. The fact that this comes out at this timing suggests that it would be difficult for the 10-year bonds to move into positive rates, and that the 20–30 year yields are also at their current highest levels. In other words, the BOJ has not abandoned the “reflationary policy,” but rather the targets were those of domestic institutional investors.