japanese yen falling

Yen Freefall, Now We See How Well Dressed The Emperors Are

By davidgyoung | Alternative Investing | 19 May 2024


At first, it seemed odd that there was little to no real reaction to the BOJ attempting to end YCC after so many years.  There was and always is some type of market reaction, but the collective shoulder shrugging from the investment community seemed strange.  With so many things happening in the world right now, suppose it is challenging to keep up with all the geo-politics and economic and financial stuff. 

BOJ Ends YCC and Implications for Bitcoin

What Would Constitute Checkmate?  

Here is a weekly chart of the Yen (we like weekly charts generally to avoid noise but also not fall asleep waiting for monthlies):

yen falling

 

As a reminder, ending YCC means NOT buying unlimited bonds which means NOT as much yen printing . . . . . . . which means in theory higher JGB yields and a STRONGER yen.  This arrangement is not holding which tells us the market has called Japan's bluff

So what is this "secret arrangement" between the U.S. and Japan?  The media threw some attention on Yellen meeting with Asian counterparts and the importance of the JPY issue.  Here's a snippet:

yellen and boj agreement

 

Another reminder:  BOJ doesn't have much in reserves . . . . . aside from UST.  So, if they need or want to persistently attempt to intervene to prop up the Yen, it stands to reason they would be ultimately dumping lots of Treasuries to generate dollars to use to buy yen

Marty Bent recently published a piece declaring that the U.S. is bailing out Japan already.  The implication is that recent meetings between Yellen and the BOJ involved Yellen telling them to NOT sell any UST and instead allow the U.S. Treasury to "get them the dollars they need" to intervene.  So what does that mean?  We haven't seen anything official but obviously there is extensive contact and dialogue among and between central banks.  This is a bit more serious.  The Secretary of the Treasury is working with "serious Japan" on these issues

All speculation aside we do know the following:

- The BOJ ended YCC and it has backfired

- there are positive outcomes as well such as it never being a better time to visit Japan than now (in terms of cost at least)

- Japan does not hold extensive reserves outside of America's debt!

- Aggressive inflation in Japan, particularly with food, would be a MAJOR issue for fixed income earners that need to eat (considering how much food and energy Japan imports)

- this is not an "OMG, wow where did this come from" as the market knows Japan has been in monetary twilight zone for decades now

So what will the central planners do now?  Let the yen completely collapse and food inflation and other issues will decimate Japan.  Intervention will only provide brief relief and requires dollars to come from somewhere by either dumping Japan's reserves (UST gets crushed Yellen not happy) or a QE-esque type of mechanism feeding USD to BOJ. 

Enjoy the show!

 

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davidgyoung
davidgyoung Verified Member

BTC since 2013. Investor. Entrepreneur. Always looking to learn and develop.


Alternative Investing
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