Newbie macroeconomic question to anyone knowledgeable

[Martinghoul]

As is often the case with HeroZedge articles, it's bullsh1t. Everyone knows full well that correlation doesn't imply causation, and yet the author is, effectively, claiming this.

You could argue, broadly, that Japanese demand for global duration is meaningful for yields across the world, but a) this is a second order effect even during the best of times; and b) is less relevant now that that JGB curve is steep and the flows have been very muted.

 

[victorycountry]

This was my understanding as well, that QE would generally be a domestic thing. So this is why I asked why this correlation appears. The article's author doesn't believe it is coincidental, but I can't understand the point he wants to get across either.

If you want to know the cause of correlation then blame the globalisation. Globalisation is the cause of the substantial growth in international trade and foreign investment.

 

[Zzzz1]

I have not read the article. But i can assure you that Boj and their QE program is completely unrelated to correlations between dollar yen and US yields.

This was my understanding as well, that QE would generally be a domestic thing. So this is why I asked why this correlation appears. The article's author doesn't believe it is coincidental, but I can't understand the point he wants to get across either.

 

[Pluralsight]

I have not read the article. But i can assure you that Boj and their QE program is completely unrelated to correlations between dollar yen and US yields.

Ok so when I overlay a chart of 6j futures over a chart of 5 year bond, what is the reason for their very high correlation? It is not a fundamentals reason from what I understand. Is it just randomness? I would like to dig a little deeper in understanding whether this is the case.

 

[Zzzz1]

There are fundamental reasons for that. How about the following suggestion: You dig a bit and come back and let's compare notes after a bit of homework. You can easily test my assertion. Look at correlations before the QE program was ever enacted.

Edit: @Martinghoul actually already alluded to it. It has to do with yield spreads and each respective curvature.

Ok so when I overlay a chart of 6j futures over a chart of 5 year bond, what is the reason for their very high correlation? It is not a fundamentals reason from what I understand. Is it just randomness? I would like to dig a little deeper in understanding whether this is the case.

 

[Pluralsight]

There are fundamental reasons for that. How about the following suggestion: You dig a bit and come back and let's compare notes after a bit of homework. You can easily test my assertion. Look at correlations before the QE program was ever enacted.

Edit: @Martinghoul actually already alluded to it. It has to do with yield spreads and each respective curvature.

Even in 2014, when the BoJ upped its QE program to 80 trillion yen, there was no strong correlation. I see the correlation starting from perhaps a month before the US election in November 2016.

I'm looking at Tradingview FV1 and 6J monthly charts.

 

[Pluralsight]

BoJ have said that they are going to continue their asset purchase program at least till the end of 2018, since inflation is only just picking up. So I would assume that it actually is still relevant?

https://www.boj.or.jp/en/mopo/mpmsche_minu/index.htm/

As is often the case with HeroZedge articles, it's bullsh1t. Everyone knows full well that correlation doesn't imply causation, and yet the author is, effectively, claiming this.

You could argue, broadly, that Japanese demand for global duration is meaningful for yields across the world, but a) this is a second order effect even during the best of times; and b) is less relevant now that that JGB curve is steep and the flows have been very muted.

 

[Zzzz1]

This was in 2012:

BoJ have said that they are going to continue their asset purchase program at least till the end of 2018, since inflation is only just picking up. So I would assume that it actually is still relevant?

https://www.boj.or.jp/en/mopo/mpmsche_minu/index.htm/

 

[Pluralsight]

I'm not sure what your point was in the last post. I have uploaded weekly USDJPY, and weekly 10 year bond, starting 2010.

I think you have just uploaded a selective 6 months of data where there might coincidentally have been some correlation. Once more, I'm saying you should be looking at JPYUSD, not its opposite.

 

[Zzzz1]

Ah? If you read my previous posts it should be perfectly clear that my point has been all along that the correlation between those two instruments is not stable. I am repeating that the correlation between USDJPY and US yields is not related at all to BoJ's QE program. Of course did the program have an impact on certain assets but there is no direct relationship between the two topics.

I did this just for you below: Both time series depict correlations. Guess what the difference is between the two series? You should play more with data.

I'm not sure what your point was in the last post. I have uploaded weekly USDJPY, and weekly 10 year bond, starting 2010.

I think you have just uploaded a selective 6 months of data where there might coincidentally have been some correlation. Once more, I'm saying you should be looking at JPYUSD, not its opposite.