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Is The Japanese Surge Into Foreign Securities An Indication Of Imminent FX Intervention?
The primary key variable when it comes to determining the future direction of US market is no longer corporate fundamentals and technicals, nor the US economy itself, as much as the daily gyrations in the Japanese Yen, which defines the move in the S&P on a tick for tick basis. As such, what the BoJ will do is likely far more relevant to US capital markets (or the sad joke that passes for them these days) than anything the Fed can pull out of its hat. And while there has been much posturing out of various Japanese administrations that deflation will not be tolerated (presumably unlike the past 20 years), and that FX intervention is near, few actually believe anything coming out of the BoJ or the Finance Ministry these days. Yet looking at what domestic Japanese investors are doing may provide a better clue as to what is in store for the Yen. As Barclays points out, in time of heavy FX intervention, such as the last period between 2002 and 2004, Japanese holdings of foreign securities tend to surge: a good example being precisely that period, during which Japanese holdings of US Treasuries increased by $320 billion, to go side by side with a BoJ which was actively selling Yen and buying up Dollars. In essence, investors there were frontrunning (or at worst investing side by side with) the BOJ. And as weekly data demonstrate, Japanese investors are once again gearing up for intervention, having purchased $60 billion of foreign securities in July and $75 billion so far in August, the highest number in half a decade. While the BoJ's talk is cheap, Japanese investors appear to have decided that at prevailing JPY levels the BoJ has no option but to start its intervention regime.
Of course, another explanation is that correlation is simply not causation, and the higher the Yen rises, the more bonds Japanese investors will end up purcasing in a Catch 22, with or without an actual intervention. Which is precisely what the BoJ is hoping for. If today's action of a massive routs in Yen carry pairs is any indication, Masaaki Shirakawa achieved his ploy... at least for now. And just in case, the rumor has yet again leaked via Nikkei that the BoJ is once again considering an emergency meeting in which only one thing can possible be discussed. Alas, as the SNB has found out the hard way, today's speculators learn to call the bluff on central banks very quickly. Either the BOJ will follow through with action within a week, or the Yen will surge to fresh record highs.
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Could someone explain to me why the Yen is so strong?
Ooops, nearly forgot.
Imminent, bitchez!
The question should actually be: Why was the Yen so weak? That was because then all other currencies were paying much higher interest. Thus, Japanese and others borrowed at low % and invested in bonds paying higher % (Free money.) Unless you got caught in a rapid Yen strengthening with everyone on the exits bottlenecking, then you did alright.
To your question:
1. Strong yen buys you commodities at nice prices since Japan does not have natural resources.
2. The BOJ somehow sends signals to the "keiretsu" for when to buy assets oversees and when to repatriate Yen. It is possible that companies may have high losses and yet with carefully timed expatriation of strong Yen and repatriation of weak Yen can actually show profit. Watch the Yen before March 31 (fiscal year end).
3. As a rule of thumb, Asians trust the Yen as a hard currency, just as Europeans trust the Suisse Frank. (That's the reason CH will never go to Euro. The European bankers and elite need a place to hide the loot.) S. America has the dollar as a second official currency.
Everyone however has started realizing that the only hard currency is gold and silver.
My Grandparents experienced two devaluations. Gold hoarding saved them. My maternal grandmother was a mattress stuffer. She only left the farm house behind. When I was very young spending time with her sometimes we used the notes to start-up the fireplace and make toast.
Because Japan exports a reeediculuous amount of shit (PS3? LCD? Tentacle Porn...) relative to their teeny population and because every other currency is on par with TP, and not the soft kind.
Japan, liberty 33 fighting to prop this sucker up....
The NASDAQ, DOW and S&P closed up at almost identical percentages
Not good...what is good? There is a sub for former U.S. retail investors now for Mr. Market to sell to...Thanks Japan!
We screwed you years ago in real estate and this time it will be equities...
Good stuff, as alwaysTyler.
Your last statement is my thought exactly. MoF has idiotically backed themselves into a corner. No matter what was gonna happen before, traders are now clearly gunning for USDJPY <80 and are gonna force the Japanese to intervene.
HOWEVER, should the SPX continue to slide, as I believe it will, losing 1000 support over next 2-3weeks, intervention in USDJPY and the JPY-xs would not only be fruitless but completely ineffectual in the midst of SPX<1000 type of risk aversion, regardless of the size which MoF is willing to commit.
Moreover, today's profit driven & weak hand short-squeeze in both the SPX & the JPY-xs notwithstanding, the SPX 1080/1145 zone still looms insurmountable while several JPY-xs are in fact at, or below, that precipice of levels which triggers liquidation by long-term, institutional, position holders. I mean, lets take a step back for a moment. What would be the eventual USDJPY target for example? 95?! Hahaha. Think about that! EURJPY? What? 125? They've blown it, they lost that chance to intervene. There's no point now, and they know it, and that's their conondrum, imo.
This is the other side of the argument, that it would be pointless and, at the moment, if/as the SPX continues sliding, completely ineffective, imo.
Ps: Japs Bitchezzz ;)
Ps2: Chart #7 has an extra 0 on the right hand $ side, or is missing a 0 on the left hand JPY side. Drunken Brits.
If the yen hits that low of 79.7 it will rebound. Nobody will be shorting if that happens, and traders would all jump on the buy side. So if they are willing to let it fall to those levels and then start or increase their intervention it would have an amplified effect.
+1 Is failed intervention what causes those nasty reversal pin bars on H4 charts, yen related? Oh, yeah it is... LOL
You probably had the same argument around USDJPY 120 right? And then 110? And 100? And 90?
Check out the bounces off those supports they are significant. I'm not saying it can't or won't go thru, but that it will have a significant bounce off this support and coupled with intervention it would be amplified. IMO
So this is what white supremacists do when they're not burning black people? Finance!
About 1 week ago, I wasn't counting on an intervention.
But with Ozawa announcing that he is running for the elections, there is a higher risk of an intervention under Kan so he could gain some support.
Now, I have no clue what is going to happen.
Bold daring action. Followed by rage reaction.
The apples going to jump on Newtons head.
Would e
help explain the big ramp up in the Canadian market as well... Our banks have gone ape shit lately... Of course the influx is a nice thing on the way up as our market is relatively small.. But it's going to hurt like he'll when everyone leaves the pool after the party is over. Sayonara bichu-sans
Off topic, but great avatar GC!
I happened to receive some government cheese back in the early 1980s, when our church (which was distributing it to the poor) received an unexpected and unmanageably large shipment of it, which everyone was then encouraged to take. It was actually not too bad ---- perhaps the last, and only, beneficial thing that I have ever received from the federal government.
thx akak.. :)
Nice close in the Euro. Bears are about to get crushed.
EURAUD -200 pips on the day...
Kangaroos spanked the euro trashette confetti fiction
The Japanese yen hasn't hit this low (recently hit 83.5) in over 15 yrs against the U.S. dollar (although in 09 it did hit 84.8), so its reasonable to expect some kind of intervention.
Or another break out -- continuation. High Amount of Credit Debt in circulation as a ratio of actual currency in circulation = higher value of currency, because there is just less of it. So, reversals at major levels work, until they don't...
So, reversals at major levels work, until they don't...
Agreed, but if the yen drops thru this level it won't freefall but will bounce at least a couple of times off this support before it goes thru. IMO
84 is a ridiculous print for JPY...dunno how long the BOJ can sustain it here before the deflation stresses become unbearable. They will be forced to buy dollars and dollar assets. Could easily spark a rally. Then we will print dollars and buy Treasuries and yen assets. So maybe the japs can own the US and we can own Japan and we'll all just swap addresses. Some of our citizens are a bit fat to be in Tokyo mansions, tho.
waistline Deflation, bitchezz
The Japanese economy will go bust if they buy dollars and sell yen. Then both the US and Japan may go bust together.
It's looking like the first 4 currencies to go bust are all tied into a neat fasces bundle ready to be bustified.
http://www.imf.org/external/np/fin/data/rms_sdrv.aspx
Euro, dollar, pound sterling, yen R.I.P.
see you at UJ < 80 and EU <1.2
Biggest trading loss I ever took was in 2004 when the BOJ intervened in the FX market. Take them seriously!