An Old Man Once Said, Do Not Trade JPY

Some old mates and I attended this fx seminar ran by an 82 year old chap a couple of months back. Whilst we took away some very important lessons from this market veteran with a truly idiosyncratic trading style, I also remember one thing he emphasised several times during his discourse. He repeated that we should never consider trading the JPY and that it was not to be trusted, as odd as it sounds, and if there was any currency pair he would never trade in his lifetime, it would be the JPY.

It could be the great war effect, I suppose, because my late grandfather never did like Japanese made products.

Last week, we had the BoJ come out to stress that nothing has changed in an eventful policy meeting except the word “without hestitation” instead of “if needed”, in Japanese. The Fed, half minded about the Taper and ECB firm about the need for stimulus, just short of negative rates.

Look at the EUR/JPY. Some cheeky FX weeklies just say, its all about __/JPY and to fill in the blanks.

Old man has a point.

JPY is now at levels not seen since July this year in a sharp contrast to AUD, at levels not seen since early September, and its been a continuous climb for a month, since mid Oct, breaking out of its Ichimoku and moving averages.

USDJPY 1Y CHART

Last week looked prepped for a small retracement but there was no chance of that and I was stopped out along many a retail trader going for the reversal, along with others slaughtered with the AUD move.

Banks have to say something about it and so the reason given is “FX performance diverged from data flow in November”, according to Citi this morning and retail folks have turned long, gunning for 103 in the near term.

What does BoJ think of this ? Japanese banks are holding a record low inventory in JGBs as we speak and “the government advisory panel published yesterday the final report to reform the Government Pension Investment Fund (GPIF), recommending the GPIF increase the risk asset portion in exchange for reducing the JGB portion in its portfolio. As the GPIF’s sell-off of JGBs would have an adverse impact on the JGB market, the BoJ could purchase JGBs from the GPIF, directly or indirectly.” (source : JPM) – very bullish indeed.

We are heading into month end and Thanksgiving and nobody is thinking much except to push on with the risk-on momentum which is too good to be true for all the skeptics out there.

I have learnt to mistrust JPY a great deal and we note that they are the only regulators who have not launched any probes into the latest FX rigging scandal. Will be selling into month end to target 99.85. No good reason, just a hunch.