Sayonara, Yen

What do we have in Japan a year after Abenomics was coined ?

A market that surged to the last day of 2013 and suddenly fizzled on day 1 of 2014, leaving market flummoxed and bankers stumped that I have not received a single trade recommendation on Japan for the past fortnight after the plaintive calls to Buy USDJPY and Buy Japanese equities in late Jan, came up against waves of disappointing data, EM indigestion, the taper, Europe and suddenly, Japan is on the back burner.

Bankers are smart to keep quiet now because if they turn out to be right (even after months), it will be the “I told you so” and if they are wrong, time dulls the memory.

For the record, the last time I opened my big mouth on Japan was on 30 Dec.

Investors for most on their part are not losing heart, confident that the combined wills of the Fed and the BoJ will see the USD/JPY at 108, 115 or even 130 if we look back at some of the older forecasts. Afterall, USDJPY rallies on good news and if there is a risk of more equity exodus, USDJPY should, by flawed logic, rally too ?

What’s gone wrong ?

We had a miserable 4Q13 GDP number out of Japan this morning (+1% vs expectations +2.8%) and Dec industrial production is seen slowing down at 0.9% month on month against the previous month’s +1.1%. Their trade balance is still in the negative territory after the shocking worst current account deficit seen last month. Meanwhile Japan’s debt has hit a new record of  USD10 trillion as the Nikkei corrected near 12% this year but is still about 29% up from a year ago.

We have the BoJ tomorrow, not much advice from our bankers and some buzz on the street that Soros is selling out. Strategists on the banks side have been voicing doubts on Japan of late (weeks after the euphoria of the 105 in USDJPY on 2 Jan), that growth is at risk, sticking in qualifiers to their forecasts earlier this year and some even calling for the impossible possibility of stagflation.

BoJ would out do themselves after over a decade of deflation to go into deep end with stagflation and that would be a historic feat by any standards for stagflation would be an accomplishment with at least one of their goals achieved – inflation.

And if the BoJ has learnt anything in the past year, shooting off their mouths to appease the greedy stock and currency punters has done more harm than good in ramping up the volatility to send any law abiding investor scurrying for cover. Perhaps that is why CEOs are slow to take up on the promises of Abenomics, to play their part in rebuilding the economy. For most of the time, the market interpretation of BoJ has been to ask for more.

In June last year, the 3rd arrow of Abenomics was already seen as a failure by experts but there was no stopping the rally because it was just noise and the rally won’t stop till the fat lady sings.

Links to old news.

I ended year 2013 skeptical on Japan although I wish I had put more money into short Nikkei. My inspiration in 2014 came from the following Bloomberg article published on 9 Jan which contained 2 contrarian calls for USDJPY at 99 and 90.

Well, CFTC positions show JPY market shorts reduce by half since December which means it can go either way tomorrow especially with the US holiday tonight and CFTC positioning for short JPY reduce by half since Dec.