short jpy
Post on 08-Apr-2018
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8/7/2019 Short JPY
1/5
NickBucheleres
ShortJapaneseYen(JPY)
April7,2011Likeeverynewsanchorandinterviewedblue-chipCEO,Iwillstartthispitchoffwithahallow,lamentinghopeforJapanspromptrecoveryfromtheearthquakethattheyincurredonMarch11th.Iwillalsopledgeenduringmoralsupportforthemintheirtimeofneed.Inthemeantime,
though,Iwillhighlightwaysinwhichinvestorscan(andwill)takeadvantageofthenaturaldisasterthatshooktheworldssecondlargesteconomyjustafewweeksback.Followingthe9.0magnitudeinitialshockthatrockedJapanamonthago,andtherecentsubsequent7.1magnitudeaftershock,Japanhastakenseveralmeasuresinattemptstosequesteraconfidentandspeedyrebuildingoftheislandcountryandrecoveryoftheirfinancialmarkets--bothofwhichwerebadlyhitbythedisaster.JapaneseEquities
Aboveisa2-yearchartof(fromtopdown)theDowJonesIndustrialAverage,theJapaneseNikkei225Average,andToyotaMotors(TM).Sharpsell-offsforallthreeofthembeganonMarch11thastheearthquakebegantolayintoJapan.TheDJIAfellonlyslightly,whileJapanesemarketsretractedtopreviousmajorpricesbases.
AreportfromCNNquantifiedtheimpactoftheearthquakeonJapaneseautosalesandtheeconomyasawhole:NewvehiclesaleswithintheEastAsiannationplunged37percentinMarch,comparedtodatafromthesamemonthoneyearago,accordingtodatafromJapan'sAutoDealerAssociation.That'sthelargestsalesdropinMarchsincetheindustrytradegroupbegancollectingdatabackin1968.Toyotawashitthehardest,showinga46%dropinsales--adecreasethatdidnotincludeitsluxuryLexusbrand.Nissansalesskidded38%,whileHondasawitsfiguresslashedbymorethanaquarterat28%.
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8/7/2019 Short JPY
2/5
Safe-HavenFlight
BeginningonMarch11th,hoardsofinternationalcurrencyflowedintothetraditionalsafe-havenassetthatistheJapaneseyen.Investorstypicallypourintothecurrencyintimesofuncertainty,asitishailedasoneoftheworldssafestinvestments,duetothecountryseconomicandfiscalsolvency.
TheJPYhasbeenseriouslyappreciatingagainsttheUSDsincetheUSFederalReserveenactedits$600billionstimuluspackageannouncedinthesummerof2010.
Followingthequakewasaswiftappreciationofthesafe-havenJapaneseyenagainsttheUSdollar.
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8/7/2019 Short JPY
3/5
BankofJapanIntervention
Followingtherapidappreciationofthepost-quakeyen,theBankofJapandecidedtoengageinopenmarketoperationsonMarch14th.OntheMondayaftertheirdevastatingweek,theBoJinjectedmorethan15trillionyen(or$184billion)ofliquidityintotheJapaneseeconomy.TheBankofJapandecidedtotakesuchmeasuresnot(only)duetothefallenJapaneseassetprices,butalsotooffsetthesafe-havencapitalinflowsthatwoulddampentheJapanese
recoveryefforts.Japan,throughmassiveaccumulationofforeignreserves,reliesheavilyonadepreciatedyentofundtheirexport-basedeconomy.AstrongJPYmakesJapaneseexportslessattractive(moreexpensive)toimportersaroundtheworld,andmaintainingtheirdominantinternationalexporterstatusintheworldeconomywillbevitalfortheJapaneseeconomytorecover.Japansdebt/GDP&nationalsavings/GDPratioshaverecentlycrossedintonegativeterritory,sotheBankofJapanmustattempttosalvagewhateverportionoflostgrossdomesticproductthatitcan,orelseitrisksenteringintoinsolventterritory.
TheyencontinuedtoappreciateagainsttheUSDaftertheMarch14thBoJdecisionuntilWednesdaymorning,whentheopenmarketoperationsweresetintoaction.Sincethen,theyensawanimmediatedeprecationagainstcompetingsafe-havenasset,theUSD,andthencontinuedintoasustainedmovementinfavorofJapansintentions.
TheBankofJapansinterventionisnearlyone-thirdofthesizeoftheUnitedStatesequivalent,referredtoasQE2.JapaneseGDP($5trillion)ismorethanone-thirdofthesizeoftheUnitedStatesGDP($14trillion).TheInternationalMonetaryFund(IMF)cutJapans2011growthoutlookfrom1.6%to1.4%.TheIMFalsocuttheUnitedStates2011growthoutlookfrom3%to2.8%,morefavorablethantheiroutlookforJapan.
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8/7/2019 Short JPY
4/5
TheGoods
Theabove2-monthchartof(fromtopdown)theEUR/JPY,USD/JPY,andEUR/USD.TheEURadvancedatamarkedlyfasterpacethantheUSDagainsttheJPYfollowingthequake.
TheEURhasbeenappreciatingagainsttheUSDformostof2011duetotheimminentEuropeanratehikesandtheBernankesfirmpositiononnearzerointerestrates.Theeurosstrengthcomesasaresultoftomorrows(April8th)EuropeanCentralBankmeeting,whereECBPresidentJean-ClaudeTrichetwillraiseEuropeanlendingratesforsolventEuropeanUnioncountries,likeGermany,forthefirsttimeinalmostthreeyears.TomorrowsratehikeisexpectedtobethefirstofpossiblythreeEUratehikesbeforeDecember31,2011.
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8/7/2019 Short JPY
5/5
LongEUR/JPY
ThisisaplayoffoftheBankofJapanspledgetomaintainadepreciatedyen,inadditiontocapitaloutflowsfromJapaninthewakeoftheearthquake.Theeuro,ontheotherhand,willbenefitfromthecapitalinflowsofrate-hungryinvestors.AnimminentriskforthistradeisthepossibledefaultofEUcountriesGreece,Ireland,andnowPortugal.Theratehike,though,doesnotrepresentincreasedriskinessofholdingEuropeandebt,butratheritisrepresentativeof
inflationconcernsoffofotherthrivingEuro-zonenations.Germanyisexperiencingrecordeconomicgrowthandproduction,andthisgrowthistranslatingintohigherpricesfortherestofEuropeans.Thistradewouldlikelylastuntilmorebearishnewscomesoutoftheeuro-zone.
Theeuroistesting2010highsagainsttheyen.Iftheselevelsarebroken,thepairhasthepotentialtohit$127+inthenear-term.LongUSD/JPY
Againoffofyendepreciation,astrongbetwillbetoselltheyenagainsttheUSdollar.WiththeFedsQE2programcomingtoanendnextmonth,muchoftheweaknessoftheUSDwillbeeliminatedfromnominalprices.ThiswilldissuadeBernankeandtheFederalReservefromraisinginterestrates,astheECBhasdone.RisingUSconsumerandproducerconfidenceispaintingapromisingpicturefortheUSeconomicrecovery,whichwillboostUSGDPandbolsterconfidenceintheUSD.Fornow,JapanandtheJapaneseyenare #losing,andthiswilllikelybethescenarioformonthstocome.Thiscomesduringatimewhenothernations(EU,US,etc.)areexperiencingarecoveryfromthe2009financialcrash,whichwillappreciatethesaidcurrenciesinthefaceofJapansgoaltokeeptheyenaslowasresponsiblypossible.njb
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