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Bruce,

Correct, I'm not comfortable with phrases like "knocked for a loop". A quarter point move still makes this and nice 4.25% round trip. I'm not convinced that COJ will move as fast as our Fed has on this last round of bottom end lifting. They have been in an awkward monetary situation for a long time, long enough for it to be the norm. The best and the brightest know that the rate has to move up sometime but everyone is going to be nervous as the process moves upward on the cycle for the first time in a very long time.

Its kind of like jacking a house to move it. Its doable in fact people do it all the time but its different when its your house. Every house that gets jacked off its foundations makes awful poping and cracking sounds, they wobble and sway until they are set back down on cribbing. If its your house everyone one of these things feels worse to you.

In good form the BOJ is being pretty forthcoming
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BDB517E1E%2D1BAA%2D4ECB%2D9754%2D919452956D82%7D&siteid=myyahoo&dist=

ts focus in coming weeks will be to mop up excess liquidity in the money markets, seeking to lower the bank's current-account balance to 6 trillion yen from a range of 30 trillion to 35 trillion yen.

. . .

t said the liquidity shift would be "carried out over a period of a few months, taking full account of conditions in the short-term money market.

. . .
Fukui said the bank will seek price stability in the medium and long term by targeting an inflation rate between 0% and 2%.


Interestingly their stock market responded with a thumbs up.
http://www.marketwatch.com/tools/quotes/quotes.asp?sid=123712&siteid=myyahoo

a nice 1.4% move although I saw reports of +2% move, maybe my quick and dirty math is wrong or its after hours stuff. We'll see if there is follow through but current visibility suggests that the NIKKEI will continue its climb.

We should note that the COJ hasn't even moved interest rates yet. What they have done is begun the process of removing a bunch of money out of the money markets. In the US the Fed. would increase the size of reserves it requires banks to hold, thus taking the money out of circulation. I'm not sure exactly what the mechanics are in Japan but that is thier first step.

from the article quoated at the top
Ultimately, analysts believe the Bank of Japan will have to raise actual interest rates, but the first hikes are likely to be in the range of 10 to 12 basis points. And some suggest the first hike won't happen for up to a year.

This move demonstrates that they believe that there is enough infationary pressure in the system to withstand this deflationary move.
Reducing the amount of money in the system will increase demand for the money in circulation if we follow a straight forward supply and demand concept. This generally lowers interest rates by increasing prices. The COJ believes that their is enough excess in the system that the slow removal of the excess will not dramaticly effect interest rates.

To address your comment more specificly, this will have an effect on the "round tripping" that many, not just the Japanese, have done borrowing short from Japan and lending long in the US. The COJ is taking some of the money making that round trip off the table and thus less of it will funnel into US, GB and Euro debt. If I did the math right they are planning on pulling out of circulation the equivilent of 25 billion USD. 25 billion USD isn't huge within the scale of all the debt that this easy money policy enables. Within the US alone its spread across both Treasuries and Agency debt, two huge markets and some of it finds its way into the GB and Euro debt and I would assume some higher risk country debt as well.

This really is a baby step but a very important baby step for both Japan and the world debt markets.

jack
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