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.
February 14, 2012 at 11:55 pm |
Good piece Yra. Thought this was somewhat interesting today – http://www.voxeu.org/index.php?q=node/7617
February 15, 2012 at 2:09 am |
With Rickards and his Currency Wars and Sinclair with his nonredeemable gold standard and Armstrong with his absence of rule-of-law so goes confidence cycling charts and lesser known Mark Hanson aka Mr. Mortgage with his no US RE recovery until around 2020, gold and silver continues in a bull market with steady climbs and a current sideways correction off their respective unsynced highs.
Iran and Israel trying to kill each other off 1 by 1, it’s a de facto war already aided by the US pushing Iran into a corner via denying them access to world reserve banking, this after they acquired a whole bunch of dollars through oil sales. Something has to give there soon.
Underfunded insurance on bonds and such, highlighting failed bets will required outright printing or global thermonuclear war to settle debts.
MF Global will become the norm.
Gold and silver recording the events.
Just saying, enjoy the lull.
February 15, 2012 at 4:42 am |
Huh—sit back ,pour a full glass of whisky,put on Barry McGuire,and contemplate the FALLOUT from the ill conceived policies of many over the last 41 years—all you cite are certainly outcomes.Logically,the credit bubble will ultimately reburst and again cause much pain and suffering—Fisher and Schumpeter and the Austrian school analyzed it and can stand tall
February 15, 2012 at 8:24 am |
CHT–thanks for the link to the article by an academic I respect—this is a very good add to today’s piece—-again tahnks for enhancing and enlightening
February 15, 2012 at 8:35 am |
Have never really understood the strength of the yen. Weak stock market, low rates, aging population. Is it the strength of their “mittlestand”? Or maybe their isolationism?
February 15, 2012 at 8:42 am |
Great discussion. So, Greece’s potential prime minister says he may not honour a bailout deal (FT). So why is euro still strong?
February 15, 2012 at 10:13 am |
C–that question plagues the PL of many really great traders.The strength of the YEN has PROBABLY been the result of the repatriation of Japanese investments for so many years and with Japan actually experiencing years of deflation the real return on money for Japanese domestics has been significant compared to other locations–thus the need for BOJ to target inflation–but as has been discussed in this BLOG for quite a while the impact of a strong currency in an economically challenged world has started to impact the Japanese manufacturers
February 15, 2012 at 10:22 am |
Do you follow (or put any credence) into the vertical move in 13week T Bill rates, IRX is the ticker.
Granted it is one data point, but they have a good track record of setting the trens for rates.
I am wondering if there is a real reason behind the move that a seasoned rate guy could easily uncover.
February 15, 2012 at 10:48 am |
M–i don’t as as I use the eurodollars/fed funds as my indicator and euribor as my indicators as well of course of the 2/10 yield curve
February 15, 2012 at 10:55 am |
Have you witnessed similar px action in ED’s?
February 15, 2012 at 3:49 pm |
M–have not and since the LTRO the market has really calmed–so I wonder what you are identifying—would be interesting to know—any readers have an idea
February 15, 2012 at 4:09 pm |
“If the United States is cheapening (the dollar) and China is holding its own, the euro must get stronger or maintain its strength, which is what the United States wants…The swap lines are our leverage on Europe to make sure that they maintain a strong currency.” Currency Wars at Carnegie Council http://www.carnegiecouncil.org/resources/transcripts/0468.html?sourceDoc=002106
February 15, 2012 at 4:22 pm |
Arthur–wow .This is interesting in theory but if the U.S. wanted to lower the dollar significantly it could of course succeed–yes as long as the EURO holds it benefits the U.S. as the EURO receives investment inflows and relieves some of the U.S. HAVEN status–but the swap lines I believe is an attempt by Bernanke to insure that Europe has the liquidity it needs and thus not deplete the DOLLARS European banks hold in the U.S. subsidiaries–this is a complicated issue,but of course the fact that Europe is Chuck Mangione’s FANTASYLAND–everything that comes out of Europe is complicated
February 15, 2012 at 4:40 pm |
Yeah! thinking about it… thanks