With the BOJ openly announcing ultra-aggressive QE to try to jump start a stagnant economy and create inflation why would anyone want to own the Yen right now? I can't see it going anywhere but down but that seems too obvious of a trade doesn't it? The dollar continues to rise against the Yen and gold hit a 33-year high in Yen terms today. Does anyone see any reason out there on the horizon for the Yen to do anything but go down?
China's inflation rate has come down a bit (at least according to their figures) and the Yuan is over-valued. So, China might devalue the Yuan which will compete against Japan's devaluation. South Korea is also not very happy about Japan policy and may devalue. The Euro Zone recession is not getting any better, so policy makers there may also do more easing and there is always the UK. Pretty much everybody wants to devalue and it may get competitive. But its pretty hard to outdo Japan, so more downside is probable. The trade may also start getting crowded with short-selling propping up the price at different points. Even with all these issues further yen depreciation is likely. I wouldn't be surprised to see JPY/USD go to 120 or 140. At some point, this may become a crisis if Japan interest rates start rising and their debt becomes unsustainable.
iwynne, good to see you on board. I think we are in agreement that unless Ben raises QE, the YEN will continue lower. Simply put there is no good reason to be long the YEN. Traders will take profits along the way, which is what we are seeing today, but it won't last long. I actually expect the YEN to turn red today. I'm certain 100 will be breached very soon, and then 102. When it gets to 108-110 there will be some back and forth, but without an additional QE, the YEN will fall much lower. BTW, I think Silver and Gold will now shine and YCS is a perfect vehicle to be coupled with our silver etf. RR
Yes, thanks for the heads up on YCS. I actually did not know it existed. :)
It looks like the Yen is already starting to crater today and it will likely close red as you stated. This morning was a nice profit taking bounce but the trend is clearly a much lower Yen. If you were a Japanese citizen and you had been holding gold and silver all this time as opposed to stacks of cash in your mattress your net worth would have risen exponentially over the past decade or more. Most ordinary people think that holding cash is a "safe" way to preserve wealth when it is anything but that. I look at cash as liquidity to pay every day expenses and bills. True wealth is in hard assets like precious metals and indispensable commodities.
What I'm watching out for is this. What if Japan instituted some sort of capital controls which prevented money from leaving the country ?
Or more likely, what if Japan comes up with some serious structural reform such as selling large national assets to foreigners ? Or simply opening the country up to foreign ownership of large companies ? It's probably not going to happen right away though because they just started this program. They will likely want to see how the market reacts and if the Japanese start to invest their own money in domestic business.
mazza, I think you are missing the big picture. Japan is not going to institute anything that will prevent the YEN from falling. It is what they want, along with stimulating their economy. A lower yen means their product is more attractively priced. The US has been after China for years to value their currency higher. China also wants a lower currency. It's not until the YEN gets to well over 110, more like 120 that measures might be considered, but don't hold your breath.
One reason the Yen could go up is helicopter Ben ups the ante on QE. If that happens, gold will soar again in dollar terms. Lets face it we are in a currency war. Don't worry though, I don't think it will happen in the near future (6-9 months). Enjoy the YCS ride.
Sentiment: Strong Buy
I agree. Bernanke could certainly increase QE especially if we get one or two more bad job reports. But in the short term I think he'll keep the printing press going at $85 billion per month. The pundits out there saying that the Fed will scale back QE this year are delusional IMHO.