Japan’s Stock Market Crashes 5.4%! Yen Surges! 10 Year JGBs Turn Negative!

I noted last weekend that global central bankers have lost control of stock markets, in spite of recently imposed central bank measures, as well as, promises for more "easing" policies.

I said that “financial markets have apparently grown weary of these central bank elixirs!”

I pointed out how Japan’s stocks, which have been a prime target for NIRP subsidies, has reversed on its early gains. This means that the BoJ's NIRP policy has essentially backfired. 

Well, it appears that my observation had been reinforced today as Japan's major equity bellwether Nikkei 225 crashed 5.4%

From Bloomberg: (bold mine)

Japanese stocks plunged amid a global equity selloff as the yen surged to the highest level against the dollar in more than a year, while financial companies plummeted on growing global unease over profitability and credit quality.

The Topix index sank 5.5 percent to 1,304.33, closing in Tokyo with the largest decline since August. Brokerages and banks led the rout as all of the gauge’s 33 industry groups fell. The Nikkei 225 Stock Average lost 5.4 percent to 16,085.44, its biggest drop since June 2013. The yen surged 1 percent to 114.75 per dollar, the strongest level since November 2014.

“We had a bubble in people’s expectations of the power of central banks. And now we’re seeing that bubble burst,” said Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd. in Tokyo. “Investors are pricing in the fact that central banks can no longer control markets. That became apparent after the Bank of Japan’s last stimulus, and now a similar view is strengthening about the ECB.”

Now even the mainstream admits to the BoJ's failure!

The BoJ’s NIRP was likewise intended to weaken the yen in order to ignite inflation. Well, much to the BoJ's dismay, the Japanese yen has been surging today.

From the same article

Japan’s currency has strengthened against the dollar despite diverging policies taken by each nation’s central bank, with the Bank of Japan last month introducing negative interest rates while the Federal Reserve raised borrowing costs in December and signaled more increases this year. Slowing global growth has pared back trader expectations for at least one U.S. rate hike this year to 30 percent, down from 93 percent at the end of 2015

Another spillover from the BoJ’s NIRP has been to spread negative rates or bond yields to now cover 10 year JGBs

From the same report

Japan’s benchmark 10-year government bond yields dropped below zero for the first time, underscoring the challenge for banks to make money from lending in the world’s third-largest economy. It fell 7 1/2 basis points to a record minus 0.035 percent as of 3:05 p.m. in Tokyo.

Today’s stock market crash was led by banks.

The Topix bank index crashed by a shocking 8.18%!

Also today’s crash basically wiped out the ECB inspired the 5.9% monster rally and has brought the Nikkei back to January 21 lows. 

As I noted then, the fiery rally was nothing more than a dead cat's bounce.

Yet intensifying signs of the reemergence of a global financial crisis can be seen via soaring credit risk.

As another Bloomberg article notes:

Credit markets are grappling with a global selloff that’s sending the cost to protect against company defaults to the highest level in almost four years as investors become increasingly nervous that global growth is slowing.

In the U.S., the risk premium on the Markit CDX North America Investment Grade Index, a credit-default swaps benchmark tied to the debt of 125 investment-grade companies, jumped six basis points to about 120 basis points at 4:02 p.m. in New York, the highest since June 2012. A similar measure for borrowers in Europe jumped to the highest level since June 2013...

Banks and insurers in Europe led a surge in the cost of insuring corporate bonds to the highest levels since 2013.

The Markit iTraxx Europe Subordinated Financial index of credit-default swaps on the junior debt of 30 firms soared for an eighth day, rising 47 basis points to 312 basis points, the highest since March 2013, according to data compiled by Bloomberg. The senior benchmark jumped 18 basis points to 137 basis points, while a measure of U.S. corporate bond risk rose four basis points to 119 basis points, the highest since June 2012...

 

All these reveal to us why bear markets dynamics have been spreading, and intensifying. And if the current momentum will be sustained, then we should the same bubble bursting dynamics in the global financial markets to percolate to the real economy.

 The obverse side of every mania is a crash!