The Japanese posturing worked: with the yen hitting a 14 year high against the dollar, inside of 85, one short week ago, in the past 5 days the Yen staged a huge drop against the US currency, plunging by the most in over a decade, to 90.5 as of Friday close. While we are not sure what Hirohisa Fujii told Bernanke on the closed line in the past week, we do owe the boys at 33 Liberty a golf clap for managing the carry roll from the dollar to the yen with such efficacy that the stock market did not plunge. It appears the $ Plunge Enforcement Desk and the S&P Plunge Protection Desk have reached a phenomenal level of synergies.
As Zero Hedge first speculated, the rotation out of dollar funded short positions back into the traditional yen carry trade is now in process. We expect substantial weakness for the Yen in the coming weeks, even as Geithner does all he can to keep the dollar weak against the Euro, AUD, loonie and all other developing economies, where the 2008 Goldman decoupling thesis is once again playing out. Maybe this time, courtesy of Bernanke, Goldman's permabullish commodity call will finally be right. However, with gold dropping 5% on Friday accompanied by a much weaker rise in the dollar, we anticipate either continued strength in the dollar as correlation desks struggle to recalibrate their models, or alternatively for gold to spike on what could be a substantial buying opportunity. With Central Banks in dire need to buy much more gold as they diversify away from dollars, the smart money is by far on the latter.