There has a been a tremendous divergence among the major central banks around the world over the past year and a half. Since January 2015  the ECB and BOJ have massively ramped up the size of their balance sheets while the Fed has actually seen its balance sheet decline slightly.  During this time, the ECB’s balance sheet has grown by 52% and the BOJ’s balance sheet has increased by 58%. Meanwhile, the Fed’s balance sheet has declined by 1%. With the recent announcement of further easing by the BOJ, another period of dollar strength may be underway. The correlation between the nominal trade-weighted dollar index and the BOJ’s balance sheet has been a remarkable 83% since 2008. This is in contrast to a 37% correlation to the ECB’s balance sheet and a 65% correlation to the Fed’s balance sheet.

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