{"id":88067,"date":"2016-04-13T07:03:39","date_gmt":"2016-04-13T11:03:39","guid":{"rendered":"http:\/\/countingpips.com\/?p=88067"},"modified":"2016-04-13T07:03:39","modified_gmt":"2016-04-13T11:03:39","slug":"the-only-thing-rising-in-japan-is-the-yen","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2016\/04\/the-only-thing-rising-in-japan-is-the-yen\/","title":{"rendered":"The Only Thing Rising in Japan Is the Yen"},"content":{"rendered":"
April 13, 2016<\/div>
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By WallStreetDaily.com<\/u><\/a> \"The<\/p>\n

The current financial markets, in which everything revolves around central banks and the global currency war, has entered a new phase.<\/p>\n

It\u2019s more complex \u2013 and perhaps more dangerous.<\/p>\n

The actions taken by central bankers<\/a> are no longer having their intended effects on the markets. In fact, the results within the market are often the exact opposite of what bankers had anticipated.<\/p>\n

BOJ Shooting Blanks<\/h2>\n

Take a closer look at the Bank of Japan.<\/p>\n

While the Japanese yen was expected to sharply decline even as the banks plunged into negative interest rates, the move was meant to create an opportunity for the country. After all, a weak yen would help corporate Japan remain a competitive exporting power.<\/p>

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Logic \u2013 including negative interest rates, a country heavily in debt, and a lousy economy \u2013 dictates that the yen take a plunge. But instead, the value of the yen is soaring ahead.<\/p>\n

Due to this unforeseen outcome, all of the BOJ\u2019s advances since it\u2019s become more aggressive in its monetary policy in October of 2014 \u2013 have now been unwound.<\/p>\n

The Japanese yen is up 15% as opposed to the dollar since the middle of last year. And with every blip that the yen rises in value, Japanese stocks continue their downward tumble, with the Nikkei 225 index falling 8% or so in just the past seven trading days.<\/p>\n

How Did this Happen?<\/h2>\n

One likely cause is the Fed\u2019s Janet Yellen continuing to weaken the dollar.<\/p>\n

It\u2019s been a three-way shootout between the Fed, the Bank of Japan and the European Central Bank in this currency race to the bottom, with each group taking a shot at the others.<\/p>\n

The Fed fired the first shot with the launch of Quantitative Easing (QE). Then the Japanese and Europeans countered with, at first, even lower rates. Then they threw in negative interest rates. Now, Yellen has fired back with the halt of this year\u2019s planned interest rate increases.<\/p>\n

Another reason for this unpredicted spike in yen valuation is a partial unwinding of the Japanese carry trade.<\/p>\n

This plunge into negative rates by Japan scared some big investors. These investors had borrowed in yen at basically zero rates to invest in stocks across the globe. When investors become fearful, they sell stocks and pay back the loans to avoid losing their money. In effect, they\u2019re buying yen and pushing up the price.<\/p>\n

Japan Will Have to Act<\/h2>\n

It\u2019s hard to imagine how Japan will weasel its way out from between a rock and a hard place \u2013 namely, the Federal Reserve and the European Central Bank.<\/p>\n

Even though American politicians will rail against Japan, only continuing to manipulate their currency, the Japanese, surely, won\u2019t stand idly by as the strong yen goes on a Godzilla-style rampage through their economy.<\/p>\n

I anticipate that action will be taken as soon as the yen reaches the 105 level as opposed to the dollar. Currently, it\u2019s around 108.<\/p>\n

Even if it has to act unilaterally, the Bank of Japan may have to begin selling yen in the currency market, in an attempt to finally weaken its value.<\/p>\n

The goal of the next shot in this currency war would be, at the very least, to get the yen back into the 110-115 range. Most Japanese companies are comfortable with the yen closer to 120 and would be able to conduct business as usual in a more stable state.<\/p>\n

With the next BOJ meeting scheduled for April 28, we won\u2019t have to wait long for a plan to be revealed.<\/p>\n

What Lies Ahead<\/h2>\n

Due to the backfiring of Japan\u2019s negative rates, I expect the Bank of Japan to attempt a different approach in self-defense.<\/p>\n

There are, actually, a couple of intriguing possibilities.<\/p>\n

One such option lies within Japanese stocks: If the BOJ were to buy shares in their own country\u2019s corporations, this would directly prop up the market. The BOJ already purchases ETFs and could expand their role in the trade.<\/p>\n

Another possibility would be stepping up their purchases of European and U.S. bonds directly, offering incentives to Japanese financial institutions to buy more of these bonds.<\/p>\n

Already, Japanese institutions have increased buying foreign bonds. This activity level is at its highest since April 2008. But, lots of the buying has been concentrated in Australia, driving the Aussie dollar up, and leaving the rest of the world with little resulting change.<\/p>\n

If the Japanese instead begin buying an influx of U.S. Treasuries, there would be a subsequent selling of yen to lower its value. This would also lower U.S. long rates, firing another blow directly to Yellen\u2019s Fed plan.<\/p>\n

It wouldn\u2019t be shocking to learn that the BOJ head has breached discussion on the subject of \u201chelicopter money\u201d either \u2013 a tactic in which a country\u2019s central bank gives money directly to its citizens rather than going through traditional banking channels.<\/p>\n

I fully expect that Japan, with its long-moribund economy, will eventually be the first economy to try this controversial tactic.<\/p>\n

Stay tuned. The fight is about to get a lot more interesting.<\/p>\n

Good investing,<\/p>\n

Tim Maverick<\/p>\n

The post The Only Thing Rising in Japan Is the Yen<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

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 <\/p>\n","protected":false},"excerpt":{"rendered":"

By WallStreetDaily.com The current financial markets, in which everything revolves around central banks and the global currency war, has entered a new phase. It\u2019s more complex \u2013 and perhaps more dangerous. The actions taken by central bankers are no longer having their intended effects on the markets. In fact, the results within the market are […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-88067","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/88067","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=88067"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/88067\/revisions"}],"predecessor-version":[{"id":88080,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/88067\/revisions\/88080"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=88067"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=88067"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=88067"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}