Brown Brothers Ruminates On The Future Of The Yen As The Next DPJ Leader Remains Undecided
All eyes are glued at Japan tonight to see who the new DPJ leader will be. As of last check the race was in its photofinish stages, with both Kan and Ozawa having an identical number of supporters. Should Ozawa win, there is an expectation that the new PM would engage in major Yen intervention, and rescue the toothless BoJ from the peanut brittle of its utter worthlessness, and since the volumeless and robotized 2nd derivative of the AUDJPY known as the US stock market trades tick for tick with the JPY, the first indication of Ozawa taking a decisive lead should send the futures limit up at 9Gs. Regardless, even if Kan remains in power, with so much of the fate of the free world dependant on the most irrelevant variable imaginable, here is an outlook on the Yen from Marc Chandler, head of Global FX Strategy at Brown Brothers Harriman, who however sees continued strength for the JPY in the near future, which means that even more stat arbs will explode over the next few weeks as stocks continue to correlate only with the Ambien consumption of one Phillip Hildebrand. "The unwinding of the previous yen carry trade is playing out and although the private sector is purchasing a large amount of foreign assets, roughly the same amount was tried previously (by the BOJ) and, it too, did not work. The stemming of the yen’s appreciation will require greater export of capital from Japan. Short-term speculative capital flows and other flows not picked up in this sketch are difficult to ascertain, leaving it difficult to generate an estimate of the magnitude of capital that needs to be exported from Japan. However, if the will was there, the Japanese government could step in to address the market's failure to sufficiently export Japan’s surplus capital."