FX Thoughts : A Yen A Day Keeps Abe Away

I am not sure when the Japanese will realise that IT IS NOT ALL ABOUT DEVALUATION and that QE will not work in Japan because the population is just too old to make it happen.

And this morning’s GDP numbers tell it all, although we still have to wait for 4Q because the fateful BoJ was on 31 Oct.

It would seem that the USDJPY does nothing more than to inflate 1 quarter of GDP each time it devalues 2-5% because overseas earnings just goes up although the actual turnover does not really increase.

We get comments such as these on Toyota Motors.

” Profit recovered in 2012 and increased significantly in 2013, mostly because of the 33% depreciation of the yen against the dollar”  Source : Bloomberg

Most strategists are of the view that Japan will see a 1. snap election and 2. a delay in the second sales tax (especially after the recent poor economic numbers) which will help Abe’s re-election chances.

We have to be cognizant that the BoJ move on 31 Oct was partly instigated by the potential sales tax hike even if they denied the connection.

It is pure speculation that BoJ could be unaware of these developments and future policy speeches and actions would be impacted which is probably why JPY shorts are not building up in a significant way yet.

 

Markets have been all about the USDJPY so far, the rest of the field just tagging along and USDJPY defying all odds and moves to break a 7 year high today yet again, a level of 117.05 after the poor GDP numbers (which meant more stimulus) and then dramatically collapsing to its 115.78 level now as I type.

I was sort of right last week about the DXY index because it closed the week slightly lower or, almost unchanged, after hitting a 4 year high on Friday night. (dead wrong about USDJPY 112 and EURJPY 141 but close for EURUSD 1.26).

And it was a strange market on Friday night because Michigan Consumer Inflation Expectations Usually Does Not Affect The Market In Such A Big Way. And in fact, it took the analysts a while before they could their finger to it, searching desperately for clues on what to blame that led to the sudden USD sell off, especially against ….. GOLD.

Perhaps it is because the Michigan Consumer Inflation Expectations is at a 12 year low. My theory is that people in America do not read much about the rest of the world and BoJ’s and ECB’s effort and, thus, are unaware that inflation will be coming back soon.  http://www.zerohedge.com/news/2014-11-14/umich-consumer-confidence-jumps-7-year-highs-inflation-expectations-plunge-12-year-l

[and they have not been talking to my wantan mee seller who says that eggs have gone up 20% in the past month and green chilli prices have shot through the roof]

I am not sure what last Friday was all about but it is clear that the market is in Lemming Mode, fast trades and all about cut loss.

I will stick to my call for last week again when we were expecting some cold in the US. https://tradehaven.net/market/fx/fx-focus-the-polar-vortex-to-the-rescue/

Buy the DXY at the 85-86 level simply because it is the only sensible thing to do barring the risks of short term pullbacks on the over-hyped Abe press conference tomorrow and the discord in the ECB.

We may also see a return to inflationary carry trades in the coming weeks but there is just too much risk to venture into Gold. Thus AUD and gang may see support which will hopefully give us nice selling opportunities.

Good luck !