Let's assume you are right, the correlation isn't at all related to the QE program. And that this correlation isn't stable. That's definitely correct, but before you said there are fundamental reasons for this correlation. User Martinghoul mentioned yield spreads, and curvature. What does that exactly mean?
Newbie macroeconomic question to anyone knowledgeable
- Thread starter Pluralsight
- Start date
Let's assume you are right, the correlation isn't at all related to the QE program. And that this correlation isn't stable. That's definitely correct, but before you said there are fundamental reasons for this correlation. User Martinghoul mentioned yield spreads, and curvature. What does that exactly mean?
man, I asked you politely to do a bit of digging on your own before proceeding. By the way the chart above showed you that whether you calculate the correlation between US yields vs USDJPY or US yields vs JPYUSD is utterly irrelevant other than the signage. Go and google and read up on the topic. You don't learn by begging others for answers.
You did not show anything like that. You tried to show 6 months of data with some kind of correlation, out of decades of this data. How long did you search for that?
I didn't come here to do a google search, I came to ask a very specific question, posting a link to my question as well. When I ask a question on a forum, usually I expect an answer on the thing that I asked instead of someone saying that I should google search. What happened instead is some guy started talking about general policies, FOMC etc without answering the point.
You didn't answer either. You say there is no correlation, and say there are some vague fundamental reasons. When I ask what these are, you can't answer. Why not give a straightforward answer to a question? Read the title of my post- it says to someone knowledgeable. It is obvious you know very little about this thing and yet you came here to somehow show that you know, God knows why. I'm done with you.
FU!!! You got your answers from multiple users. That you don't have a clue gives away that you are a newbie (which is ok, initially). That you are not reading up on your own on terminology you don't understand makes you a lazy newbie. That you now "expect more answers" makes you a lazy and arrogant newbie.
People like you really are the reason that those who are aiming to help are getting more and more frustrated and give up in the end. Good luck sucking others for their time and efforts.
People like you really are the reason that those who are aiming to help are getting more and more frustrated and give up in the end. Good luck sucking others for their time and efforts.
<<<<The Japanese exchange rate is being influenced by massive distortions with their unprecedented quantitative easing programs. And that’s the rub. The Yen is not ‘tracking’ but instead ‘creating’ these moves in the U.S. capital markets.>>>>>
Japan QE ---->USDJPY,JPYUSD -----> US capital markets.
Size of QE implies quantity of circulation of Yen, the article implies the quantity of Yen circulation is leading to correlations with US capital markets. Then it posts a series of charts showing the correlations.
<<<<It is easy to forget the magnitude of their purchases. >>>>
this statement implies that the Yen is being used to purchase or effect the purchases of derivatives in US capital markets. Without overtly saying it is being done. By movements in its own policies (BOJ), it is leading to correlated decisions in US derivatives. Correlated movements to the biggest fish (BOJ) is a form is risk management for market makers. Correlated movements are just a evolution of risk management.
Japan QE ---->USDJPY,JPYUSD -----> US capital markets.
Size of QE implies quantity of circulation of Yen, the article implies the quantity of Yen circulation is leading to correlations with US capital markets. Then it posts a series of charts showing the correlations.
<<<<It is easy to forget the magnitude of their purchases. >>>>
this statement implies that the Yen is being used to purchase or effect the purchases of derivatives in US capital markets. Without overtly saying it is being done. By movements in its own policies (BOJ), it is leading to correlated decisions in US derivatives. Correlated movements to the biggest fish (BOJ) is a form is risk management for market makers. Correlated movements are just a evolution of risk management.
If you were using the yen to purchase US derivatives, the yen should be getting weaker while these derivatives should be getting stronger. Which is not something that this chart shows (it shows JPYUSD and the bonds moving together). Of course, there's many other players outside Japan in these instruments but we're just trying to have a simplistic view as a start.
I think that's where the confusion is, the Yen isn't being used to purchase. The policies of the BOJ/USD/JPY is being used to make decisions in US capital derivatives by others.
Do you mean that because of yen having 0 interest US investors use it to buy other derivatives? Or otherwise can you elaborate on what you mean?
The traditional dynamic is very simple:
- Japanese savers (either directly or indirectly, through their pension funds and banks) demand bonds
- the BoJ has taken a lot of JGBs out of circulation through QE
- furthermore, global QE in other places has also had an effect of reducing the availability of 'safe', high-quality liquid sovereign bonds
- treasuries, therefore, are in demand from the Japanese (and other) savers, who cannot buy their own bonds
Emphatically, the author of the ZH article isn't actually making this point. They are making a simple error of assuming causation where there is only correlation present. Specifically, both USDJPY and treasuries are sensitive to the degree of risk aversion and fear in the mkt, especially now. This common "fear factor" is driving both. That's all there is to it.
- Japanese savers (either directly or indirectly, through their pension funds and banks) demand bonds
- the BoJ has taken a lot of JGBs out of circulation through QE
- furthermore, global QE in other places has also had an effect of reducing the availability of 'safe', high-quality liquid sovereign bonds
- treasuries, therefore, are in demand from the Japanese (and other) savers, who cannot buy their own bonds
Emphatically, the author of the ZH article isn't actually making this point. They are making a simple error of assuming causation where there is only correlation present. Specifically, both USDJPY and treasuries are sensitive to the degree of risk aversion and fear in the mkt, especially now. This common "fear factor" is driving both. That's all there is to it.
I read your answer, and I think I actually got it. It makes sense. No causation, but risk aversion driving both. 4 pages of bla bla for a simple answer.