Fx Thugs And JPY Funding Are Made In Japan

If there is only 1 country in the world who can pull it off, it is only Japan.

There is no way any country can forcibly devalue their currency by 7% in a month and still have their stock markets up 15% and attract praise (or no criticism) for their actions.

So much for accusing China of exporting deflation, Japan export companies profits have soared 10% this year because of the currency while their stocks are up 6.2% which makes sense because the rest of the companies are importers which means they would be suffering.

I have been a fan of USDJPY for 2 years now.

31 May 2012  : “I am only hanging on to one thing right now. USDJPY does not make sense…..If we want to wipe the slate clean, USDJPY should be normalise to 83.00, 93.00 then 103.00 ….. ” https://tradehaven.net/market/to-admit-its-way-over-my-head-lets-wipe-the-slate-clean-usdjpy

And of course I want to slap myself for squaring it out early last year, the greed clouding over the better judgement of the long term view.

For I have lost the agenda along the way for Japan and the Abenomics thingey with their 3rd arrow with the circus going on in Europe, US and China.

There are 3 growth engines in the world – China, US and Europe. Japan has fallen to 4th place and a distant 4th for that matter. 4th means they are not crucial to total well being but cannot fail to cause disruption.

The saddening part about this round of stimulus now known as QQE because Abenomics Arrow 1, 2 and 3 have been fired and missed, is that none of the strategist reports I am reading are predicting any success out of it more than the FX gains for clients.

That is a sickening thought but put into the perspective of the 6 years of QE, results are usually not instant. And it looks like Japanese patience is wearing thin.

Bernie wrote this in July.
“The magazine praised the success of Abenomics’ first two arrows: the JPY10.3 trillion fiscal stimuli and the BoJ quantitative easing. However, Abenomic’s third arrow had been underwhelming since Jun 2013. Despite that, the beauty of the Japanese people is their perseverance. The proponents of Abenomics are still trying as we write and yours truly hope that the latest blueprint brings us closer to the promised economic recovery…” https://tradehaven.net/market/ad-hoc-commentary-abes-third-arrow/

Our eagerness for some action and profits have reduced this QQE to 1 result – USDJPY at 120.00 which was within reach yesterday afternoon before the huge U-turn we saw because I guess folks realised that if it is too easy then there will be no profits left for tomorrow.

Looking at the USDJPY hourly chart over the past 7days, we can see the gradual climb up on position building, marked by sharp declines.

usdjpy hourly

The market is very long now to that 120 target with profit taking along the way.

Now consider this.

There is no more impetus for more stimulus at least until after the elections although Abe is working on a new package which is facing fierce resistance from the Ministry of Finance. http://www.nytimes.com/2014/11/21/world/asia/japans-economic-woes-cast-new-doubt-on-abenomics.html?_r=0

Assuming no more fireworks till then, investors will have time to sit back and rationalise and none will be thinking harder than those visionaries like John Mauldin who took the plunge with a JPY mortgage for his US property in May last year, a move that greatly impressed me (putting his money where his mouth is, unlike others). http://www.mauldineconomics.com/editorial/thoughts-from-the-frontline-a-yen-for-a-mortgage

USDJPY was at 102 then and it crashed lower subsequently.

Now he would be sitting on profits of about 15% on the notional of the purchase price of his apartment and if we assume a leverage of say 80%, wow ! That is like 75% return on his capital.

This applies to all who had locked in the JPY carry trades. Is it time to lock in this insane profits or wait for 120, the promised number ?

There is another angle to this as well. The central banks and their coffers. This round of depreciation will certainly be forcing them to take action, just like the last time with QE, to fight the currency war and buy JPY.

After watching the inane run up over the past 3 days and the 119 break yesterday, I think it is time to sell the JPY, taking comfort from Aso’s comments this morning that the ascent has been too rapid. Target 115.

usdjpy 10 year

A-so, A-be It. One more for posterity and to remind my dear friend, Retire Trader of what he said back in Feb last year – USDJPY 115.

“When you have an Abe as Prime Minister and Aso as his Deputy you sort of have an A team .

a-So, you end up with “A-h, I dunno what I am doing but I will make sure you will remember what I am doing.”

a-So they say this and they say that.

1. Target inflation at 2%
2. Target USDJPY 90-100.

a-Be they put their money where their mouths is and tell us how they will inflate their way back to their former glory……

a-But-Then, we need to have them pull another rabbit out of the hat before we inevitably reach 115.00 as Retired Trader says.” https://tradehaven.net/market/a-so-a-be-it-usdjpy-and-eurjpy/