The Yen is finally weakening as the likely incoming Prime Minister, Shinzo Abe, called for unlimited monetary easing:
The yen slumped to the lowest in more than six months against the dollar on prospects Japanese elections next month will hand power to an opposition party that advocates more aggressive monetary easing.
The dollar gained against the majority of its 16 most- traded peers as a report showed the cost of living rose in October at the slowest pace in three months, a sign U.S. inflation is in check.Japan’s currency weakened to almost a two-week low versus the euro on speculation the vote will favor Shinzo Abe, who called for the central bank to provide unlimited stimulus.
The currency wars continue…..
One day after the embattled ruling party called for the snap vote, the head of the main opposition party, Shinzo Abe, pushed himself to center stage by saying “if we come into power, we will implement bold monetary easing through an accord forged with the Bank of Japan.”
The comments jolted the markets, and the dollar jumped above ¥81 for the first time since April 27, as traders reacted to his determination to force interest rates down and reverse the yen’s persistent strength this year.
The currency’s move helped push up the Nikkei Stock Average of 225 companies 1.9% to 8829.72, its highest close for a week and the biggest one-day gain for a month.
The last time we saw a big move down in the Yen, Japanese stocks moved up almost 25% in a matter of just 4 months (late 2011 into early this year). Once the Yen resumed its climb the market gave it all back.
If we get a sustained move down in the Yen the upside for Japanese stocks is large. Whether that is possible or not is the question. Jeff believes it will be hard to impossible to pull off and based on recent history that is hard to argue with. We’re long DXJ (long stocks, short Yen) for this move. Whether it is long term or not depends on what happens with the Yen. For now, I’m watching the wedge pattern for a breakout to the upside. If we get it we will probably add to the position:
The long term trend line on the Yen is a long way down from here:
I’m not sure what a move of that size, down to the long term trend, would do to Japanese stocks since I don’t know what would trigger it. If it comes because of a long overdue debt crisis, it probably won’t be good for stocks. If it is because of unlimited Yen printing, it will probably be seen as a positive for Japanese exporters and the economy as a whole (whether that is true in the long run of course is dubious). The CFO of Nissan once said that if the Yen would go to 90 he could finally take some time off because the company would run itself. That’s probably an exaggeration but these Japanese companies have been dealing with a strong Yen for a long time and have gotten pretty efficient because of it. A weaker Yen translates into higher Yen profits and probably higher stock prices.
The US stock market is giving us all heartburn but we need to look beyond the US for profit opportunities. This might be one that can offset what is going on here.