Japanese officials including those at the Bank of Japan have been acting very erratic of late, eschewing the more traditional financial setting of vagueness. First it was NIRP that immediately blew up in their face, leading to very loud rumors of additional bank “stimulus” to offset NIRP only to have the BoJ instead do nothing at its last policy meeting. They are behaving as if both desperate and increasingly unsure what to do about it.

Yesterday it was Japanese Finance Minister Tara Aso’s turn to wander far from the polished script. He outright threatened intervention rather than played coyly about how the government and BoJ would “act appropriately” as has been the standard cliché. Not only that, Minister Aso repeated his strong words again today. Specifically mentioning “one-sided moves”, it is unusually clear that he (speaking for the government) does not think the recent appreciation in yen is proper (my word).

While it is easy to consider Aso’s rejection of yen appreciation only under Abenomics, meaning the specific intention of QQE to devalue the yen as some kind of export “stimulus”, there is much more going on here. After having successfully pushed the yen wherever it wanted (to no avail, of course, but that isn’t relevant to orthodox economists’ calculations that are devoted only to past correlations not actual results) the Bank of Japan now finds itself unable to get much beyond very temporary bursts. When the BoJ unleashed NIRP in late January, the yen did respond by falling back below 121.00 but only a week later it was back up to 116.00 and then 111.00 by February 11 despite it.

In other words, NIRP “somehow” did nothing for the yen but cost the BoJ a great deal in money market disruption and growing (still) dysfunction. From that view, you can appreciate Aso’s “one-sided” charge as all of sudden Japanese officials are disrobed very publicly, turned powerless as if there is some greater force at work.

Obviously, the timing of these moves gives that away. This all took place during the global liquidations of January and February, suggesting (very strongly) that the yen and Japanese financial resources were a full part of them. Rather than being a mystery, this is not the first time that a well-respected even feared foreign central bank has fallen victim to the “dollar”; since the start of 2015 it has become an almost regular occurrence. First the SNB was forced off its peg, then the PBOC succumbed in spectacular fashion. The “dollar” has now, apparently, set its sights upon Japan.

I think it is important to understand why and how Japan fits into the “dollar short” and thus the growing “dollar shortage.” I published an anecdote this weekend behind our paywall that examines one aspect of it that I believe is important enough for these purposes to republish in part here. I still find China as perhaps the primary source of potential general and global disturbance, but I also get the growing sense that Japan as separate from China bears very close scrutiny in that same regard. I find evidence for that in funding markets that barely budged after February 11 in direct, sustained contradiction to the hard, 180 degree shift in sentiment that spread throughout risk markets and even economic commentary.

The Japanese maybe more than any nationality were betting on the global recovery. That meant not just an economic rebound but perhaps more so the financial re-institution of the eurodollar standard in close approximation to what it had been prior to 2007. I doubt that anyone believed that the “dollar” would be rebuilt exactly as it was, but at least in the earliest stages of recovery after the panic and with global central banks demonstrating their commitments there was real possibility of the eurodollar coming out systemically similar if at least leaner and wiser.

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