Has The Bank Of Japan Started Another Round Of Central Bank Wargames?

Never pick a fight with a central bank. The only one who gets hurt is you. Unless, of course, you are another central bank.
Central banks routinely intervene in the markets to influence the prices of assets, commodities and currencies. That’s the way monetary policy is conducted. It’s the principle behind QE.
Generally, everyone co-operates. When a central bank announces that it intends to buy assets, investors queue up to sell – even though they presumably have optimized their asset portfolios. Some of those who opt to sell to a central bank would no doubt have sold anyway. Others perhaps bring forward sales that they would have made at a later date. And others may seize the moment to make opportunistic sales. But there has never yet been a central bank that couldn’t find assets to buy when it wanted them. If a central bank wants to buy assets, markets make assets available.
The reason for this is something of a mystery, but I think it is really simple game theory. The reason everyone co-operates with central bank bond buying programmes is that there is no point in not doing so. A currency-issuing central bank has infinite resources. No-one else does. The only way of winning this game is to co-operate with the player who can’t lose – i.e. the central bank. So in the end, the central bank will buy everything it wants to, simply because it can. And because market participants believe this, an asset-buying central bank effectively controls the market price not only of the assets that it buys, but also of the currency that it issues to buy them.
Japan’s central bank is buying large amounts of assets as part of the Japanese government’s combined monetary and fiscal stimulus program designed to end Japan’s long-standing economic stagnation. Here’s what happened to the yen today (chart from Bloomberg):
Source: Markets