Profit From Japan’s Troubles – USDJPY and Nikkei

IMF upgraded the Japanese outlook this week, one of only a handful of upgrades against a whole bag of downgrades.

Citi just sent out a JPY piece worth reading.

“we presented three structural reasons for the deterioration in Japan’s balance of payments: (1) demographic changes, such as Japan’s aging population; (2) a decline in Japan’s productivity; and (3) globalization of the world economy

This just adds to the end of the strong JPY story along with the headline of Japanese Investors Buying the Most Foreign Bonds in 9 months (Bloomberg) as we head into the Japanese Upper house elections later this month.

Threadneedle thinks that “very good years” could lie ahead for Japan (WSJ), citing that should Abe successfully implements Abenomics “Japan could enjoy several very good years of corporate performance as profit margins rise”. But it does not change the fact that Adult Diapers Are Expected To Outsell Baby Diapers In Japan by 2020 (Huffington Post).

Foreigner investors share that sentiment as Foreigners Buy Most Japanese Stocks In 7 Weeks (Bloomberg) in a longest streak since Apr 2012.

The Citi article notes that Japan’s balance of payments have fallen out of favour for a strong JPY, a long term call. Attributing it to their loss of competitiveness and the earthquakes from the past and an expectation of accelerating FDIs by Japanese firms into the rest of the world, the certain future holds for a higher USDJPY.

Taking all this in, we can only expect Nikkei and the JPY to rise in tandem as they have been correlating for much of the past decade, targeting USDJPY 110 for 2014, as the report suggests. (Note, in a 121 pager, Credit Suisse has a 12 month target of 120)