Lunch With Legends, The Take On USDJPY And More

It makes me feel important when I spend time in the company of market legends because their aura rubs a little off onto little old me and I feel taller sometimes, which had nothing to do with the free beers.

3 market legends including our once upon a time contributor, Asianmacro, Dialastrategist, who has gone back to work and, as such cannot be seen contributing articles to Tradehaven or to public good, and the Father of Five (FoF), our on and off contributor, the discussion invariably drifted to CNY and JPY.

View on Japan

Dialastrategist embarked on her take on Japan which was the highlight of the lunch. In a perhaps not so much by a stroke of chance, she managed to glean some first hand information on the behind the scenes thought process at the BoJ. The incomplete points I managed to summarise, in a partial drunken stupor.

1. BOJ is no longer fixated with the USDJPY because inflation has returned.
2. Their unspoken pact with Abe is that there will be QE if the fiscal deficit is fixed but that is not happening.
3. As it is, they are buying more than monthly supply of JGBs each month, creating a market vacuum.
4. There is a potential of a future hikes in the sales tax to fill up the fiscal gap (up to 15% to be tolerated).
5. The trade deficits registered is partly because the locals were buying up most of the exports ahead of the sales tax.
6. Nuclear power has to resume because the fuel imports are causing the current account deficit.
7. The pension funds are incredibly slow in their offshore investment forays which does not appear to be happening.
8. Baby boomers are accounting for consumption at the moment and wages are slow to rise even as the country grapples with their severe aging problem.

With the BoJ on hold and the overcrowded market positioning in the USDJPY, there are few push factors to drive the currency much higher other than market demand which remains to be seen as we head into Japanese year end on 31 March. And we know that JPY repatriation is the typical market pattern into year end. Yet we had very little of it this year.

My belief is that the USDJPY is more correlated to the trade deficit this time round and I made a call about a week ago for 100.50 target (calling for USDCNY at 6.20 !! .. before the PBoC announcement which is no big deal because I was not positioned for it !)

I still believe we will gravitate to that one year average of 100 -100.50 in the weeks ahead if things worsen on the currency fronts and margin calls strike which would squeeze the crowded trades out.


View on China

China is working hard to avert a hard landing but determined to flush out her ills. Xi Jinping is a 3rd generation princeling who is facing strong opposition behind the scenes in his attempt to clean up.

We do not even know where to start with China’s problems because there is rot everywhere. One thing for sure is that the days ahead could be pretty dark without bringing the missing plane into this because Dialastrategist’s conspiracy theory cannot be mentioned here.

Asianmacro is of the view that the slow down has exacerbated in the past 6 months and we can be sure the numbers do not add up with the central bureaus churning out estimates that do not tally with the ground numbers. But knowing China, it will be under control.

6.40 is the magic consensus number for the USDCNY. It is rumoured that the central bank does it daily checks on the spec positions that used to have it so easy, on the one way train of CNY appreciation.

Freeing up the currency is the first step with more casualties to come. Like Japan, these reforms will and shall take a long time.

View on the JPM EM Global Bond Index Adjustment

News : J.P. Morgan to boost Colombia bond weighting, peso up most in 6 months

COP ?? Not very surprising – COP is the rising star of Latam as MXN ages gracefully.

But why is Indonesia reweighted lower ?

It should be INDIA ! There is nothing more different between 2 countries that are viewed by the west as the same, with their twin deficits and inflation problems…. Indonesia is changing but India is regressing at an alarming pace …. (this was where I lost them in the beer…)

View on Singapore and the upcoming MPC

Unchanged, Dialastrategist declared. And the usual debate between support for exporters and the financial sector which has been dutifully bringing home the bacon in recent years. (further details censored because I do not want to be sued or shut down).

So there we have it, random bits of an information haul that I managed to patch up, to be shared with readers with vague permissionings. Fortunately, I managed to get FoF to send me his NZD dollar analysis with milk prices thrown in, which I will be posting right after this.

Hope it is of use.