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Guest Post: Is The Yen A Proxy For Yuan (rmb) Devaluation Or Carry Trade Déjà Vu?
Submitted by Yves Lamoureux of Blackmont Capital
I have been bullish on the Japanese currency since March 2007. What I think defines broad movement in currencies is perception along with broad relative monetary actions. The expansion or contraction of monetary aggregates in one currency versus another is in essence its purest denominator.
We show today such a timing model in the yen/usd rate of exchange. Notice that timing simply based on monetary aggregates can be not forgiving for quite some time until the new trend establishes itself.
The top chart is of the yen itself. The bottom chart shows the expansion or contraction of the broad money base. It does generate great warnings ahead.
I have changed the color to purple for the expansion or rise of monetary aggregates. It will be useful to make our present case more obvious.
I congratulate Albert Edwards on beating me to the punch for the yuan devaluation thesis. I too have been expecting this for over a year. Bringing it up now was however too early for me. I believe that the yen might bear the brunt of the devaluation first as the Chinese currency does not float readily.
The present USD carry trade is the equivalent version of the yen carry trade on steroids plus more. There is no doubt that zillions of derivatives have major multiplication effects. The real fun part begins when you want to unwind this.
The parallels are eerie just as then Japanese held in contempt their own currency. They could not sell it fast enough to buy high yielders. Just as then, they would face an end-game. This is where we did an excellent purchase of yen in combining sentiment and broad money timing, giving us a green light.
It would appear that we are starting to get the same elements but in reverse. Sentiment on the yen is sky high and broad money is acting up.The chart on the right hand side shows the last purple arrow moving up. It would therefore be my expectation of a top in the Japanese yen. Yet to be defined is the nature of the correction. Does it portend to an upcoming devaluation of the yuan ?
A direct benefit of a weakening yen is again long treasuries. Our Japanese friends turned sellers of bonds would quickly revert to becoming buyers again.
I study one market at a time on its own merits. But perhaps this unlikely trigger might offer the delicate carry trade too much destabilization…
Yves Lamoureux, Investment Advisor, Blackmont capital inc
The opinions contained in this report are those of the author and are not necessarily those of Blackmont Capital Inc.. Every effort has been made to ensure that the contents of this document have been compiled or derived from sources believed to be reliable and contains information and opinions which are accurate and complete. However, neither the author nor BCI makes any representation or warranty, expressed or implied, in respect thereof, or takes any responsibility for any errors or omissions which may be contained herein or accepts any liability whatsoever for any loss arising from any use of or reliance on this report or its contents. BCI is an independently owned subsidiary of CIFinancial. CI Financial is a Canadian owned diversified wealth management firm, publicly traded on the TSX under the symbol CIX. Blackmont Capital Inc. is a member of CIPF and IIROC.
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Quite the opposite IMO. AUD and JPY strength are proxies for Yuan appreciation by being the only market proxies available for the new Asian sphere of influence and I see AUD strength especially as a harbinger of capital flow into the region.
If you're an Asian country given the yuan peg it is being devalued. The danger is competitive deval.
China is like GE on steroids, GE's massaging elicited a small fine... ChinaAnstalt would send the dollar to the moon.
Made $$ on yen during the unwind, who knows what is next, Japan seems to be running out of options save large scale monetization of debt.
If dollar carry unwinds, given all the collateral damage, would think that Japanese yields would not suffer and yen would strengthen.
Could the devaluation in North Korea portend a Yuan devaluation?
Could the devaluation in North Korea portend a Yuan devaluation?
Do you read anything in to the North Korean devaluation? Ie... if China pulls the strings there, could this be a trial run?
Do you read anything in to the North Korean devaluation? Ie... if China pulls the strings there, could this be a trial run?
It is a very interesting analysis. As for me, I don't think so. I believe China and Japan have different reasons of devaluation their currency. In fact, the instruments of monetary policy are very interesting. I've found nice books in Economic Science at the files search engine http://rapidpedia.com . I see that the devaluation for China has only a lot of advantages. Though the situation with Japan is different.