6 Sep 2013
Yen short the next killer in Q4? Funda, Techs starting to agree...
FXstreet.com (Barcelona) - Following the BoJ press conference, Mr. Kuroda warned yet again that delaying the tax hike may cause irreparable consequences for Japan's fiscal credibility, which implies added pressure for Japan PM Mr. Abe to raise the sales tax as planned.
What Kuroda had to say?
Kuroda, during Thursday's BoJ press conference, was quoted as saying: "The BOJ can do little to cope with potential consequences in financial markets from a loss of confidence in Japan’s fiscal policy", adding “It is highly uncertain how that would affect the bond and stock markets as there would be extremely limited scope for (the BOJ) to take action.”
The latest comments by Mr. Kuroda are just a reminder of how high the chances for the sales tax to be approved are, as recently reported by Japan's Economy Minister Mr. Amari, who said 'most experts in the sales tax panel back tax hike'.
Tax hike = QE = Yen negative
If this happens to be true, the implications could be that the tax has some obvious damaging effects on consumption, as wages continue stagnant, with the latest indicators suggesting 14th month in a row of decline. At FXstreet.com, we informed on the 'Abenomics squeeze' on Japan's workers earlier this week.
As noted by Ivan Delgado, Head of Asian Editors at FXstreet.com: "The combination of depressed salaries coupled with evidence of prices levels picking up, makes the April 2014 sales-tax hike, set to be implemented as planned, a potential major setback for the Japanese economy, which raises the odds of the BoJ resorting to more easing, a Yen negative event."
On this regard, BoJ Kuroda said yesterday: “(If it) makes it difficult for us to achieve the 2% price stability target, we will take necessary measures in response.”
Short Yen getting 'tempting' again
The Yen has been trading extremely erratic along the summer period, yet now that the big boys are back to their trading desks fully operational, as Sean Lee reports, saying "Hedge funds have returned from their August holidays with a strong desire to drive USD/JPY higher so we will have to wait and see what their conviction is like", some are starting to bet for the next big move down on the Japanese currency.
Lee had the following to add: "Gossip is that big hedge funds have returned from summer holidays with USD/JPY on their minds and position blotters. They've started ramping up positioning and the term that's been used is 'this hasn't even started yet.'"
"Targets of 110/115 are being mentioned. I do agree this HF angle has legs; many haven't had great year and they are back after August hols hoping for a 'hail mary' trade. Looks like the bullish USD/JPY basket is getting filled with lot of HF eggs" Lee said.
The fact that USD/JPY has broken a long-held triangle to the upside, coupled with the very same move also confirmed in the Nikkei 225, it communicates the market may be ready to put on some heavy offers on the Yen once again.
From a macro trade perspective, as Japan continues to battle against a chronic deflationary environment, perhaps those HFs mentioning the line 'this hasn't even started yet' might not be exaggerated, as Kuroda has categorically said in other occasions - a la Draghi - they will do 'whatever it takes' to make the 'inflationary dream' come true.
Kuroda has a mandate, and he is ready to go the extra mile to prove the radical policies will work, even if it means a triple digit exchange rate vs the USD the new norm.
What are the risks to play a Yen short?
Since even the most compelling idea comes with risks of not manifesting, there are some risks long term investors and traders will have to factor in, if the show the courage to put on the potential Yen short. The main risk should be on the 'risk-on, risk-off' pattern to return, should the market be swamped by any sustainable risk aversion cycle, either led by geopolitical tensions or any other type of black swan event.
Another secondary risk is that the Japanese government decides to adopt incremental 1% rises in the consumption tax, which if coupled with an aggressive extra fiscal budget to ease the pain in the economy, might also see a setback for those betting against the Yen, as the BoJ might not feel compelled to intervene, subject to how the economy/CPI evolves. Still, even if this second scenario materializes, chances are the Yen will still depreciate, yet on a much softer fashion.
What Kuroda had to say?
Kuroda, during Thursday's BoJ press conference, was quoted as saying: "The BOJ can do little to cope with potential consequences in financial markets from a loss of confidence in Japan’s fiscal policy", adding “It is highly uncertain how that would affect the bond and stock markets as there would be extremely limited scope for (the BOJ) to take action.”
The latest comments by Mr. Kuroda are just a reminder of how high the chances for the sales tax to be approved are, as recently reported by Japan's Economy Minister Mr. Amari, who said 'most experts in the sales tax panel back tax hike'.
Tax hike = QE = Yen negative
If this happens to be true, the implications could be that the tax has some obvious damaging effects on consumption, as wages continue stagnant, with the latest indicators suggesting 14th month in a row of decline. At FXstreet.com, we informed on the 'Abenomics squeeze' on Japan's workers earlier this week.
As noted by Ivan Delgado, Head of Asian Editors at FXstreet.com: "The combination of depressed salaries coupled with evidence of prices levels picking up, makes the April 2014 sales-tax hike, set to be implemented as planned, a potential major setback for the Japanese economy, which raises the odds of the BoJ resorting to more easing, a Yen negative event."
On this regard, BoJ Kuroda said yesterday: “(If it) makes it difficult for us to achieve the 2% price stability target, we will take necessary measures in response.”
Short Yen getting 'tempting' again
The Yen has been trading extremely erratic along the summer period, yet now that the big boys are back to their trading desks fully operational, as Sean Lee reports, saying "Hedge funds have returned from their August holidays with a strong desire to drive USD/JPY higher so we will have to wait and see what their conviction is like", some are starting to bet for the next big move down on the Japanese currency.
Lee had the following to add: "Gossip is that big hedge funds have returned from summer holidays with USD/JPY on their minds and position blotters. They've started ramping up positioning and the term that's been used is 'this hasn't even started yet.'"
"Targets of 110/115 are being mentioned. I do agree this HF angle has legs; many haven't had great year and they are back after August hols hoping for a 'hail mary' trade. Looks like the bullish USD/JPY basket is getting filled with lot of HF eggs" Lee said.
The fact that USD/JPY has broken a long-held triangle to the upside, coupled with the very same move also confirmed in the Nikkei 225, it communicates the market may be ready to put on some heavy offers on the Yen once again.
From a macro trade perspective, as Japan continues to battle against a chronic deflationary environment, perhaps those HFs mentioning the line 'this hasn't even started yet' might not be exaggerated, as Kuroda has categorically said in other occasions - a la Draghi - they will do 'whatever it takes' to make the 'inflationary dream' come true.
Kuroda has a mandate, and he is ready to go the extra mile to prove the radical policies will work, even if it means a triple digit exchange rate vs the USD the new norm.
What are the risks to play a Yen short?
Since even the most compelling idea comes with risks of not manifesting, there are some risks long term investors and traders will have to factor in, if the show the courage to put on the potential Yen short. The main risk should be on the 'risk-on, risk-off' pattern to return, should the market be swamped by any sustainable risk aversion cycle, either led by geopolitical tensions or any other type of black swan event.
Another secondary risk is that the Japanese government decides to adopt incremental 1% rises in the consumption tax, which if coupled with an aggressive extra fiscal budget to ease the pain in the economy, might also see a setback for those betting against the Yen, as the BoJ might not feel compelled to intervene, subject to how the economy/CPI evolves. Still, even if this second scenario materializes, chances are the Yen will still depreciate, yet on a much softer fashion.