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Albert Edwards: Yen Collapse Will Lead To "New Round Of Currency Turmoil", Deflation In US And Eurozone
One look at FX trading this morning and all one can see is surging volatility and, for lack of a better word, turmoil. Which is precisely what Albert Edwards said would happen in his latest note overnight (released just as the USDJPY briefly breached 125) in which he observes that the Yen has now fully broken its 30-year support and predicts that "a new round of currency turmoil" is beginning.
From the SocGen skeptic:
The break of ¥122 took much longer than I expected but it has just occurred and I think yen weakness will become a dominant driver of markets and economies. We reiterate the particular vulnerability of China to yen weakness – in a replay of the events that led up to the 1997 Thai baht devaluation. China has big deflationary problems and cannot tolerate any further rise in the renminbi. Indeed, on one key measure, China is already in outright deflation."
As a reminder, Edwards was the first who predicted that the breach of key USDJPY 122 support would unleash accelerated selling to 145, something which he timeframed as taking place by March 31. Judging by the recent acceleration in the Yen's collapse, maybe he was just early.
Having finally crashed decisively through ¥122 last week (see chart below), what has changed since November? Two things - deflation fears in the west have ebbed away recently but the economic situation in China has become more precarious. The most important thing as the yen sets off another round in the global currency war is that China in now in outright deflation and cannot tolerate renminbi appreciation. As the yen drags down other regional currencies, and the renminbi is forced to participate in a competitive devaluation, deflation fears will surely quickly reignite in the west."
Currency wars aside, Edwards believes the Yen is trading now as it was some 18 years ago - when brisk Asian growth cratered and led to the 1997 Asian crisis, once again as a result of manipulated, artificial currency values due to dollar pegs.
Yen weakness at this juncture reminds us of events before the 1997 Asian crisis. Back in the mid-1990s, a period of undervalued Asian currency pegs to the dollar had stimulated strong growth in the region and large balance of payment (BoP) surpluses. Then the whole process went into reverse as inflation picked up, real exchange rates soared, competitiveness was lost and BoP surpluses turned to deficits. That process has happened again in EM economies in general but importantly, also in China. Their real trade-weighted exchange rates continue to rise, even as the bilateral dollar rate remains stable (see chart below).
And while the SocGen strategist started off predicting the future level of the USDJPY, in a world that is more inextricably linked and globalized than ever, the logical conclusion to this analysis is what happens in China once Japan loses control of its currency devaluation, forcing not only South Korea to join QErrency Wars which it has been inches away from for the past 3 years, but also Beijing even over the Politburo's chronic fears of capital outflows.
China may wish to keep the renminbi stable at this time while the IMF is currently considering including it in the SDR currency basket. But the economy is simply not in a position to withstand a major yen decline bringing down the currencies of its competitors in the region (and the additional deflationary impulse). I remain convinced that China must start guiding its currency down against the dollar and it can do that easily now it has a BoP deficit by doing absolutely nothing (ie not intervening any longer to hold it up)! China will also take the IMF?s recent declaration that the renminbi is no longer undervalued as justification for these actions - link.
Worrisome deflation is already being imported into the US, especially from Japan (see chart below). China (blue line) has yet to participate, but a further round of Asian devaluations will inevitably see waves of deflation heading westwards ? as in 1997/98. Watch this data closely.
Edwards' conclusion: "The US and eurozone remain a hair?s breadth from outright deflation. A weak yen could push them over the edge into deflation proper as China is forced to finally join the global currency wars."
That's ok though, because in the meantime, record stock prices will hit even recorder levels, making the record rich even richer, if only on paper.
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Albert Edwards: Not a Joo!
-Sandler
Little humble advice. Buy the YCS put it away and look at it in the future and smile. Same can be said for physical Gold.
This article coincides with the prophecies of Revelations btw... (Just saying)
So we may very well see Hyper-Deflation, which would be terrorizing....
(Not to mention it would indeed coincide with the protocols...)
LOL, this article is published just as the collapse in the yen was over and started to rebound. More sheeples to the slaughter.
Look at Japanese Bond Yields:
JGB 2 Year Yield -0.01%
JGB 5 Year Yield 0.09%
JGB 10 Year Yield 0.40%
JGB 30 Year Yield 1.48%
and now watch the Yen collapse from 102 to the dollar to 124 in a few months:
http://www.investing.com/currencies/usd-jpy-advanced-chart
Who in their right minds will want to buy Japanese bonds with such a great currency risk? And when the Japanese bond market dies, it will collapse the entire world wide bubble in bonds.
The only buyer of JGBs is the BOJ now.
In conjunction with the Fed and Brussels. This is the biggest ponzi the world has ever known. The posted "rates" are a complete joke, the real instrument nicely hidden away on some computer screen ledger you cannot see, feel, touch, or know true value.
And that's the way the liars want to keep it.
This fucking thing will blow sky high and so bad that everything will be washed away into nothingness.
Personally, I can't fucking wait! Some reality would be a nice change for humanity.
The problem is that if they are all in on it, then it is all relative.
That is the only thing that has saved their necks thus far. Competitive QE, where each side lets off equal pressure. Voila, Nirvana.
pods
No, watch interest rates go up.. like to the FED rate to 2%, and the rest of the centeral banks following... STAGFLATION
Who in their right minds will want to buy Japanese bonds with such a great currency risk?
Well nobody, except the BOJ. They are the only buyers of 5, 10 , 30yr bonds. Tick... Tick... Tick... BOOM!
So, basically, US consumers get to benefit from lower prices on Asian-made crap while all their currencies collapse. But our stock market won't be affected.
Where do I sign up?
I like Jap crap, Detest Chinese crap, but still buy it anyway. Nobody is getting out without a lot of pain and Japan is pretty BSDM about it.....
remember when Japanese crap was the Chinese Crap of the world...can hardly wait for the Indian crap to be the new crap....and we won't be able to afford Chinese or Japanese crap
It won't be the consumer that takes advantage. I think we are headed for massive deflation and market correction. Just as asset prices bottom and the chosen have bought everything at a discount or at least what’s left and the sheeple are all loaded up on Sovereigns, QE x10 will be announced and will destroy the USD and the global currency system with it. Weimer hyper-inflation for everyone. Just a guess.
+100 - I know!! Isn't it a fucking beautiful thing!!
the US Fed will go inflationary, as it has moniterized the bonds it holds. StagFlation all the way around, one currency chasing the other. Once it gets started, it won't stop..
Any day now, Albert.
A sign. There have been many. The time is already here (Swiss) when the CB's no longer cooperate with each other. Gyrations!
Deflation. Ha ha. Good one.
realize pretty much on an island here
but (imo) deflation always in the cards as asset bubbles burst
spent the past 6 years deleveraging and holding tight to dry powder ($$s)
the steady drumbeat will grow only louder from S&P firms -
"revenue/earnings negatively effected by FX ... "
should do wonders for employment and capital goods orders (already negative)
I think Albert is getting a little ahead of himself here. The Japanese macro has actually been better over the last month making it highly unlikely the BoJ will add any additional stimulus in September.
There's massive f/x hedges in usd/jpy from foreign investors that are vested in the Japanese markets using $usd as the funding currency.You've also got the axj trade. When the carry unwinds in Japan it will do the same thing to the $usd that happened in Europe last month.
I have no doubt that the BoJ will eventually lose control, but these things don't move in a straight line and what Albert is suggesting would cause a massive global shock.
As the Japanese earthquakes get bigger and deeper, and shake the remaining nuclear power plants to smithereens. China Syndrome x30.
Talk about Death Cross...
Unlike most people, I love deflation. I won't complain if my money buys more, a lot more. Will you?
It's the selling into it that hurts
It will never be allowed to happen due to all the behind the scenes "side bets" involved. Japan could sink into the ocean and the currency would not collapse. CBs would stabilize the Yen, and the news would tell you it is free floating currency that no one prints anymore. Wall Street would eat that nonsense up and it would probably increase in value. It is just a blip on ascreen that central banks print to enforce. FOREX is a complete and total economy destorying farce. Collectively, Wall Street is too stupid to understand what they are looking at anymore. It will end the way it should. But not until the last day, and all at once.
Japan is the largest US Treasury holder. They can stop Yen from declining by selling treasury. They don't want to do it because they like to see Yen drop but there is a limit.
I wish you would post that comment on Fuc to Market's weekend shill pieces
Didn't Kyle Bass say Japan is completely screwed over 120? I got my popcorn ready...
As I recall, he thinks that the Yen will go to 300 to the USD.