Last night the BOJ announced its monetary policy and revealed inflation targeting and an increase in its variation on the theme of QUANTITATIVE EASE (QE). The INITIAL reaction has been that the YEN was heavily sold against the DOLLAR and other currencies. Is this action by the BOJ and supported by the MOF (Ministry of Finance) going to succeed in weakening the YEN? October 31, 2011, the BOJ intervened in the currency markets by BUYING DOLLARS AND SELLING YEN and on that day took the YEN FROM 0.7560 to 0.7960.
The market was unimpressed by the BOJ‘s action and spent the next 3 months trading higher versus the DOLLAR and the EURO, thus the October 31 date was a mutation and its impact died a slow death. It will be of major importance if the new BOJ POLICY IS DEEMED EVOLUTIONARY AND FORCES A CHANGE BY SUCCESSFULLY DEPRECIATING THE YEN AGAINST MANY CURRENCIES. IF THIS IS A MERE ONE DAY WONDER THEN THE JAPANESE ARE GOING TO HAVE TO MOVE TO A REGULATORY REGIME TO PREVENT FURTHER YEN APPRECIATION.
This is potentially a game changer for the global risk-on/risk-off paradigm as another HAVEN stands to be destabilized. By pumping up the liquidity and enhancing it with an inflation target. The Japanese may finally be succumbing to the pain of a strong currency in a weak global economy.
****Two Questions need to be addressed:
1. If the Japanese effort is deemed successful, the world’s worst equity market for the last 20 years should find some buyers. The NIKKEI has been so lethargic for so long that most investors have removed it from their trading screens. Stocks like Mitsubishi Bank (MTU) trade at ridiculous low PEs and pay a nice dividend but have gone unloved so long. Maybe there is hope if these orphans can find a buyer.
2. The GOLD SHOULD HAVE PERFORMED BETTER IN AN ENVIRONMENT WHERE ANOTHER MAJOR BANK JOINED THE GLOBAL LIQUIDITY PARTY. GOLD CLOSED DOWN ON THE DAY SO THE NEXT FEW DAYS SHOULD BE IMPORTANT TO SEE IF THE GOLD CAN FIND A RALLY OFF THE JAPANESE ACTION. IF THE NIKKEI RALLY PROVIDES STRENGTH FOR GLOBAL EQUITIES IT MAY SIMPLY BE THAT GOLD IS LOSING SOME OF ITS SAFE HAVEN GLITTER AS MONEY SEEKS RISKIER VENUES.
IF SO THE LONG SILVER, SHORT GOLD MAY BE A RECIPIENT OF BOJ ACTION. AGAIN, MUTATION OR EVOLUTION, LET THE NEXT FEW DAYS BE YOUR MAP.