Friday, June 7, 2013


I was expecting a USDJPY crash at some point this year, considering how so many speculators crowded into the trade, without the underlying fundamentals to support it.  But I didn't expect the crash so soon after the launch of Kuroda's bazooka QE program and with the equity markets flying high.  It goes to show you that you can often predict a good selling price but you can't time when the trade will go in your favor.  I thought USDJPY at 102 was a good long term short opportunity but I didn't want to tie up my capital on a trade that could take months to turn profitable.  But I knew if I had unlimited funds, I would have definitely had a long term short USDJPY position in at 102. 

The rapidity of the crash underlines the fragility of the yen weakness thesis.  Traders don't really know that the BOJ has been much more conservative in expanding its money supply than either the ECB or the Fed over the past 20 years.  And Japan still has a current account surplus, despite its trade deficit.  And its trade deficit is nothing compared to that of the U.S.  And there is no rate differential between US and Japan, so you have no positive carry on a yen carry trade.  That is the BIG difference between now and 2007, when the carry was over 5%.  So you can't assume a USDJPY getting to 110 or 120 like 2007 despite a rallying stock market because there is no positive carry. 

Also, we quickly forget that the Fed is a rampant printer itself, so the BOJ isn't alone, and with my expectation of a moribund economy for the next few years, QE will be here to stay.  I do expect the USDJPY to bounce next week but there is no long term uptrend, it was just speculators piling in hoping greater fools would bite and believe the rhetoric.

We had a V bottom yesterday on the USDJPY crash, which underscores the resilience of this ES.  It is a dragon.  You can't kill it with one swipe of the sword.  Multiple swipes will be needed.  But it is a different ball game now.  Bears with timely shorts will get paid, unlike the last 6 months. 

No comments: