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The Collapse of the Yen: The Party Has Only Just Started
”Oh, how I despise the yen, let me count the ways.” I’m sure Shakespeare would have come up with a line of iambic pentameter similar to this if he were a foreign exchange trader.
Those who followed me into a yen short at ¥88.5 on March 5 and held on until yesterday’s low of ¥93.25 are looking at a profit of 5.1% and a home run of 25.5% if you went with my recommended 500% leverage with a stop. If you bought the leveraged short yen ETF (YCS), you clocked 10.4% on the move from $19.25 to $21.25. It beats the hell running with the lemmings in the S&P 500, doesn’t it?
We are now within reach of my initial target of ¥95, which we could see as early as Friday. Those with hot hands who have been unable to sleep since they strapped this baby on might want to cash in there. Others who are in for the long haul can sit back, get comfortable, and dig into the first chapter of Lady Muromachi’s 1,000 page Tales of the Genji. To remind you why you hate the Japanese currency, I’ll refresh your memory with this short list:
* With the world’s weakest major economy, Japan is certain to be the last country to raise interest rates.
* This is inciting big hedge funds to borrow yen and sell it to finance longs in every other corner of the financial markets. Notice that the euro/yen cross has popped from ¥121 to ¥125 in the last three weeks.
* Japan has the world’s worst demographic outlook that assures its problems will only get worse. They’re not making Japanese any more.
* The sovereign debt crisis in Europe is prompting investors to scan the horizon for the next troubled country. With net net debt at 100% of GDP, Japan is at the top of the list.
* The Japanese long bond market, with a yield of 1.2%, is a disaster waiting to happen.
* You have two willing coconspirators in this trade, the Ministry of Finance and the Bank of Japan, who will move Mount Fuji if they must to get the yen down and bail out the country’s beleaguered exporters.
This is all why, after catching a breather at ¥95, we’re going to ¥100, then ¥120, then ¥150. That works out to a price of $37 for the YCS, but it might take a few years to get there.
If you think this is extreme, let me remind you that when I first went to Japan in the early seventies, the yen was trading at ¥305, and had just been revalued from ¥360. If we get a surprise with Friday’s nonfarm payroll figures, and you get a pop up in the yen, use the gift to increase your shorts in the futures and the (YCS). And no, this prediction is not an April fool’s prank.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out of consensus analysis, please visit me at www.madhedgefundtrader.com . There you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on the “Today’s Radio Show” menu tab on the left on my home page.
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USDJPY
Daily chart bullish.
Weekly chart now bullish
Monthly chart neutral
http://www.zerohedge.com/forum/latest-market-outlook-0
MHFT called it spot on a month ago.
Japan's recent relative currency strength seems to be based on "the country is already being screwed, so it can't get worse.".
Now everyone's at the bottom, there's a new realtive bottom, and it's Japan. The govt is also saying more QE is a good idea, and devaluation might be a good thing.
USDJPY 105 by Sept ?
This is a preposterous "Wall Street" view of the world. Wall Street's view of reality is deluded. So is this article. That you believe the yen will collapse shows you don't understand anything about the world around you. Which, by the way, is why thousands of hedge funds have already blown up. Nearly all of them would have blown up were the Fed not to have stepped in and saved all of Wall Street and the hedge funds with it. Go find a job where you actually have to compete without the nanny state backing you up and you'll find out your ridiculous views are generally rejected by a competitive market. The Yen is NOT going to collapse. But the hedge fund business surely will. And, that means you should be worrying about your own book rather than that of Japan.
This is kinda short term isn't it? 95? When I lived in Japan from 1982 to 1987, the Yen was, at one point, 400 to one dollar. The standard for many years, decades (?) was 240. When the yen went below 240 my Japanese friends and I laughed and joked at the yen being 100 to 1. Little did we know. Couple of years ago, when the Yen was still in triple digits, one Japanese elder lady living in the USA said her grand kids told her not to send them $100 USD for birthdays/gift times, anymore because $100 doesn't buy anything in Japan.
Used tobe there was Demographic challenge in the US too.
There's pretty good evidence out there that Japan's high-end exports are starting to see pretty good price gains in the recent quarter or two. The Japanese 'deflation' story is not one of monetary policy, but rather, of outsourcing, and the technological trend towards larger scale integration in microelectronic components. But the tide is definitely turning there.
Japan's situation currently looks ugly because we're at a long-term bottom in the price of high-value engineered goods, goods which Japan has developed an extremely capable domestic industry around over the past 50 years.
Scratch beneath the surface, and you will find that Japan has one of the most structurally sound, sustainable, and productive economies in the world, and, of all the indebted nations, is one of the most solvent nations to which to lend. Japan is a world leader in dealing with the labour productivity problem inherent in an increasingly elderly population. Japan is an example of a society and an economy which we should all strive to emulate.
And interest rates have very little to do with 'returns'. If you believe in interest rates being a future predictor of returns, then, certainly, why not borrow in USD$, and invest in Zimbawbwe's banks -- they offer interest in the many thousands of % per annum. Certainly you can see the fallacy of such. Japan hasn't decided to pursue a reckless FIRE-centric economic policy similar to that of the United States, so there is no need to play games with interest rates.
They have just approved a record budget that is underfunded by half. The pension funds, which have previously purchased the bulk of their bonds is close to balance on payout and has indicated to the MF that they will not be a net purchaser of bonds, probably ever again. They have just increased the savings cap in the government owned Post Bank by 100% in order to attract more funds to convert into bonds. If this works, it will suck money out of private banks and thus move more money from the capital structure of the economy into the government social programs. If the Japanese don't buy this scheme, where will the government get funding?
They have bought into the Keynesian theory of heavy debt and government spending(for two decades) and the new government is pushing it even further. The first Asian "cap-and-trade" scheme was begun just yesterday. Taxes will be increased across the board. They have given all children free educations through high school, including private schools and have doubled the allowance for all children, regardless of need. I love Japan, but they have yet to learn the lesson of two decades. Instead, they are doubling down on their policies and kicking the can further down the road.
The Hatoyama administration, elected on "hope and change", is following the Obama playbook in an already weakened economy. If they win an absolute majority in the upcoming upper house elections, they plan to push their big government agenda even harder, despite the lack of funding.
I don't see the soundness in their economy that you do, though, again, I love Japan.
"extreme"? you're a mad man indeed. the word is the recovery in Japan is picking up steam. Why wouldn't they raise rates and "start to give something back"? It's not like they want to be like the United States.
Bonzai
http://www.bloomberg.com/apps/news?pid=20601039&sid=aBmgJSstDl74
You mean 'banzai'. Bonzai is the meditative art of pruning miniature trees.
Sorry MHFT... I no longer trust you after your BS negative propagandizing about electric cars.
So sorry.
Sorry...
Bonsai