Photographer: Tomohiro Ohsumi/Bloomberg

A Veteran Trader Hopes His Lucky Cufflinks Bring a BOJ Surprise

  • Virtually nobody expects the BOJ to change policy Thursday
  • Still, many traders have been caught out by Kuroda before

On Thursday, Andrew Clarke will put on his trusted good luck charm -- a pair of silver cufflinks with the image of a bauhinia flower. Stefan Worrall and colleagues will swap notes on the timing of the big event. And Makoto Yamada will once again push back his lunch break.

The occasion -- Bank of Japan day -- is still a key calendar event for stock traders across Asia, but the excitement that greeted policy decisions in the early years of Governor Haruhiko Kuroda’s term has largely disappeared. Virtually nobody expects the BOJ to make any changes to monetary policy after its two-day meeting. Some foresee adjustments later this year, but in the form of tightening, not easing. In Japan, Europe and the U.S., all the signs point to the great era of central bank stimulus winding down.

Still, given Kuroda’s penchant for confounding the market, nobody is taking anything for granted on Thursday.

“Superstitions are an illusion,” said Clarke, the 50-year-old director of trading at Mirabaud Asia Ltd. in Hong Kong. But “I do tend to wear the same cufflinks,” he said. Predicting what central banks will do is a “thankless task,” he said, but he’s hoping for a surprise that would mean more orders from flustered clients.

The odds are dead set against it. Japan’s stock market is hovering near the highest since 2015, the economy is poised for its longest run of growth in a decade, and even prices are showing signs of rising. And the expected Federal Reserve interest rate increase this week should, of itself, stimulate Japan’s economy by weakening the yen. Given that, it’s hardly surprising that none of the 41 economists surveyed by Bloomberg expect the BOJ to step up easing, while 38 say the bank has finished adding stimulus during Kuroda’s term.

Click here to read the full Bloomberg survey of economists.

The global central banking scene is a far cry from the years after the financial crisis when policy makers raced one another to pump funds into the system. The Fed may be preparing to raise interest rates as many as four times this year, while investors are betting the European Central Bank will start lifting borrowing costs before it ends its quantitative easing. In that context, the early years of Kuroda’s term are becoming a distant source of nostalgia.

Amazing Days

“The BOJ days have been amazing,” said Worrall, director of Japan equity sales at Credit Suisse Group AG in Tokyo. “Suddenly monetary policy became sexy.”

Worrall recalls the day in April 2013 when Kuroda fired his first “bazooka” -- pumping unprecedented money into the economy through a bond-buying program in a bid to achieve 2 percent inflation. “Everyone expected a surprise, but when it came it was a surprise. It was weird,” he said. “Double the balance sheet, in two years, to achieve two percent. It was like something Japan had never seen before. It was crazy.”

Kuroda removed any lingering doubts about his intent in October 2014 when the BOJ doubled down on quantitative easing -- the second bazooka -- and tripled the amount of exchange-traded funds it buys. For good measure, Japan’s government pension fund fell into line behind Prime Minister Shinzo Abe’s inflation ambitions by announcing it would slash bonds and put half its then $1.1 trillion in assets into equities. Stock volume that day almost doubled.

‘Blown Away’

“I was blown away,” said Hajime Sakai, chief fund manager at Mito Securities Co. in Tokyo. He calls the “Halloween easing” his most memorable BOJ day. “I was happy because I was holding shares. But it was a tragedy for those thinking markets would fall.”

Little did traders know that the strangest BOJ day was yet to come. Early last year, Kuroda announced a negative interest rate policy. While equity markets were unabashed in their enthusiasm after the first two bazookas, this time the reaction was as unexpected as Kuroda’s move. The yen surged to the highest against the dollar in more than 2 1/2 years some months later and Japanese stocks were down 23 percent for the year by February as banks slumped.

Not even a further doubling of ETF buying in July could stem the pessimism. Eventually, in September last year, the BOJ switched course to a focus on controlling the yield curve.

“It was the one meeting I missed by going to the gym at lunch, because I didn’t expect anything,” Worrall, a 16-year veteran of Japanese markets, said of the January gathering when the bank moved to negative rates. “And it was the biggest meeting.”

Lost Control

Worrall was bombarded with calls that week as clients sought to work out the implications. No one could really understand it, he says. With time, the decision came to be seen as the point when central banks relinquished their power over markets. Worrall said it looked like the BOJ had lost control.

“A lot of people, including myself, didn’t see it coming,” Yamada, 39, the head of equity trading at SMBC Nikko Securities Inc. in Tokyo, said of the negative-rate decision. “I remember Kuroda saying a week or so before that he was ready to do whatever it took, but the market still didn’t think negative rates were an option.”

These days, however, the excitement before a BOJ meeting has largely gone. Pictet Asset Management Japan Ltd.’s Hiroshi Matsumoto says he discusses the central bank less with overseas colleagues, and when the topic does come up, it’s about who will succeed Kuroda. “It’s not the time for them to make a move,” he says.

Read: The Tokyo Whale Is Quietly Buying Up Huge Stakes in Japan Inc.

If anything, the focus has turned to tapering, as the BOJ runs out of bonds to buy and owns more than two-thirds of the country’s ETF market. Talk of tightening has clearly increased, says SMBC Nikko’s Yamada, while Sakai at Mito Securities is resigned to the best BOJ days being gone.

“Of course, it’d be nice to have it happen again,” Sakai said of the October 2014 bazooka. “But it’s something of the past.”

Still, that doesn’t mean Clarke will ditch the cufflinks on Thursday, or that Worrall will take the chance of being away from his desk again. While all indications are that nothing big will happen, with Kuroda at the helm you never can tell.

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