"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Monday, November 3, 2014

Japanese Yen Succumbs to BOJ Wishes

It is no secret that the monetary authorities, as well as the political leaders of Japan, want to see a weaker Yen. The current Japanese leadership is desperately trying to stave off a deflationary wave that has held the nation in its iron-fisted grip now for what seems like an eternity.

The entire idea behind the attempts to take their currency lower on the crosses is to ramp up inflationary pressures associated with a falling currency ( that is a subject matter that requires a post of its own ) and to somehow turn the Velocity of Money higher by getting people to spend now and incur more debt now rather than wait for lower prices to spend later.

The Yen is therefore one of those LONG TERM macro trades that many hedge funds are interested in playing ( much to the delight of the Japanese leaders). It has however been an extremely difficult trade at times to remain in if one is short simply because the Yen can experience some violently sharp rallies anytime there is a rush away from risk and into safe havens.

With ultra-low interest rates in place as far as the eye can see, and with a clear signal from the authorities there in Japan, the temptation to use the Yen as a funding currency for a highly leveraged CARRY TRADE is just too great to pass up by some very powerful speculators.

However this huge macro trade will see very swift reversals whenever FEAR RISES or equities plunge. The size and scope of those carry trades is enormous but the fact that they are heavily leveraged means that losses can quickly accrue if the leveraged positions move the other way. As a result, one will see the yen shoot up rapidly when stocks are selling off. That is simply the sign that the carry trade is being unwound during that time period.

For the trader who is interested in catching a trend, this currency is one that looks to be firming up and asserting itself once more but one must understand , and be prepared, that any of these "risk aversion" episodes can punish you quite severely.  It is therefore not for the faint of heart nor for the poorly capitalized trader.

I have noted some technically significant levels on the long term monthly chart. As you can see, the Yen has plunged rather dramatically the long two months and has begun the trading month of November down sharply as well. But look at the big spike it made in last month's trade before closing out on the lows last week. It was a 500 point move ( please note I am using CME reporting and not the usual Forex reporting and I have dropped out the decimals). That is very tricky to sit through if you are short and are watching "your life passing in front of your eyes" type short covering rallies.

The plunge in September took it down through chart support which was followed by a rally back up to that broken support level ( that then served as resistance) followed by a plunge lower. As you can see on the chart, the Yen can make some rather steep, unidirectional moves at times so the idea of "overbought" or "oversold" are not especially applicable when it comes to this currency.

Here is the one of the things to note about this - the Yen comprises almost 14% of the weighting of the USDX. While obviously not near as great a weighting as the Euro, continued weakness in the Yen does tend to feed into the current trend of a stronger Dollar.

A stronger Dollar here in the US tends to have a deflationary impact on commodities and serves to keep inflation at bay. I said all this to say that a weaker yen may very well tend to feed weaker gold prices here in the US.


  1. long way up to the first fib that would be there on Dan's chart as well.

    like corn bulls talking the .382 fib at 391, looked a long way away from 318.

    wheat sold a billion bushels to brazil, but wheat export inspections were poor.

    export inspections are out, corn was poor these higher prices aren't helping it.

    soybeans the 'alternation' would be green on tuesday. consensus is that the soymeal problem isn't solved yet. one idea for the alternation is because the squeezers know there are plenty of sellers, so they give them a day, then squeeze again the next.

    there are mini currency futures contracts, a nice way to practice the game.
    cheerio pipsters!

  2. new highs Nikkei 225 futures, now +305pt at 17,375.

    European stocks go from japan GPIF inspired highs friday to economic reality lows today.
    ..no election in europe haha.

    NIKK of course likes stronger usd/jpy, and used to be a well watched NIKK-TNX relationship:

  3. This comment has been removed by the author.

  4. good buying or the close in ZW ends +5 and in corn to cut it's losses on the close.

    there's a 'rogers roll' and it's out of dec contracts now, was mentioned for dec meal weakness along with rumors of cargoes of meal coming to usa from south america.

    traders almanac buy lean hogs 2nd session of nov. and hold for 12 sessions! ham what am for gobble gobble day eh!

    an almanac buy gold comes in about 11/21 and it's on a sell JY already into next feb.! but it's also on a buy euro hasn't worked too well thus far.


  5. wowo bubblin crude lost attitude into it's pit close!

    oil plunging to fresh 2+yr lows, ECB Nowotny changing tune on QE for 2014 - two reasons stocks are finding their way back to UNCH.

    as Dan said.. USDX at 87.42 is hard for commodities.

  6. I was doing business in Japan a couple years after this deflation and currency strengthening was well started. I saw the desperation of the business men first hand during our afterwork get togethers. I can only guess at how they feel now.

    For all the BOJ investment in stuff and Abenomics, this is and example of how hard deflation is to cure and the internal effects of too strong a currency. JMHO but I am a bit concerned about the strength of the US dollar.

    1. That is malarkey.

      A strong currency makes raw materials cheaper. A strong currency attracts savings.

      The Euro went from .85 to 1.45 and German exports went up. Not down. The USD went from 125 on the DXY to 80 and exports fell.

    2. M
      Your welcome to your opinion.

      As noted I was there and saw it first hand. Deny all you want.

      BTW Germany isn't the only economy in the euro zone. Might want to consider FRance , Italy , and Spain as well.

    3. I welcome yours as well.

      One has to question the reasoning behind the causes of the economic problems in Japan. As I stated , there is many examples of high value currencies doing well in export markets. The US was the biggest exporter in the world and also had the highest value currency. Japan has always been suffering from Keynesian intervention.

      Italy or Germany has no minimum wage so as far as devaluation being more competitive, it can lower wages as far as it needs to, to compete on the labor front. Taxes are another issue all together. These places have the best of both worlds. A high currency making imports cheap and low wages making internal investment attractive.

  7. Thanks Dan.
    Wow...crude oil tanked this afternoon right around the close.
    Any headlines anywhere around that time indicating what might've happened?

    1. DPH;

      The Saudis cut their selling price for oil to the US... they are going after the US shale industry in my opinion. Some are talking a price war with the US over oil...

      We'll see about that but it makes sense since they did not cut their prices to Asia but raised them instead.

    2. Ok...got it
      "Saudi Arabia Signals It Will Let Oil Slide Further, FACTS Says"

      By Anthony DiPaola /Robert Tuttle
      November 03, 2014 10:34 AM EST

      Saudi Arabia, the world’s biggest oil exporter, is telling the market it won’t cut output to lift crude back to $100 a barrel and that prices must fall further before it does so, according to consultant FACTS Global Energy.

      Swelling supplies from non-OPEC producers drove Brent crude into a bear market on Oct. 8 amid waning demand from China, the world’s second-largest importer. The Organization of Petroleum Exporting Countries meets Nov. 27 to consider changing its production target in the face of the highest U.S. crude output in almost 30 years.

      “Production of shale oil in the U.S. will not be hit as hard as the Saudis think” by the price decline, FGE Chairman Fereidun Fesharaki said at a conference today in Doha, Qatar.

      Producers in the U.S. “can withstand a lot of pressure” by reining in their operating costs before they curb investment in new wells and production, he said.

      Crude could drop to between $60 and $80 a barrel and stay within that range there for about six months until global production aligns with demand, Fesharaki said at the Condensate & Naphtha Forum. Oil in that range is the “right price”...(cont.)


    3. Just saw your quick response Dan, thanks.
      Just like doing the limbo dance...how low will they go and for how long?
      Some interesting geopolitical dynamics in play behind the big curtain these days.

    4. US shale oil bubble may have found its pin.

      Take away the shale bubble and watch the US trade deficit make record highs.

    5. Who is this "M" who thinks he knows everything? Hey, dope, American oil is not some bubble. There is likely over $200 trillion worth of oil under US soil. Potentially as much as $500 trillion. You apparently let ideology get in the way of your ability to think in a rational manner. come back a write a post when you actually have something intelligent to say.

    6. Who cares if it costs 600 trillion to extract it.

    7. Eric webber;
      I tolerate "M" for the amusement he provides with his vapid comments but must admit my patience is wearing thin with him. I just gave Mr. puppet the boot and am seriously considering doing the same with M.

      He is an investor with a personal financial death wish.

    8. @ eric

      You must have ad blocker. Otherwise you would also have all the latest and greatest subprime shale oil plays going across your screen.

      BTW the merchandise trade deficit has made new highs.

  8. While in some respects this shale gas/tight oil "revolution" has had a significant impact on the global energy outlook it appears to be a relatively short lived event. As M said "a bubble hunting a pin". Well depletion rates are not indicative of long term, sustainable energy production. In addition there has been a groundswell of opposition in many locales resulting in fracking moratoriums. In light of this I am at a loss as to why the Saudis would be so concerned.

    1. Have you seen any hyper-inflation yet?

    2. Gene;

      I disagree with you - I have some good friends in this industry who would take exception to your views as it being "short-lived".
      I am put in mind of the past Matthew Simmons whose peak oil theory was all the rage a few years back but which was totally destroyed by advances in technology/

      Oil will be with us for a long, long time.

    3. Another intelligent response Eric, thanks.

    4. Not familiar with Mr Simmons, trader Dan, but I would guess high oil prices temporarily killed his theory. At 100 plus a barrel fracking looks OK but maybe not at 70.

    5. Gene;

      the cost at which fracking is profitable will vary greatly from location to location. There is so much oil in the US that it is mind-boggling. Like anything, as the technology becomes even more sophisticated, the cost goes down.

      I am especially optimistic because I can envision a huge industry being built around natural gas. Personally I would love to find a real honest and decent politician ( if any exist) that would take up the cause of moving more and more of our transportation to Nat Gas.

      It will happen at the fleet level first however. An entire structure would have to be built ( think natural gas filling stations instead of gasoline stations ) but of course this will take many years to transition. It is coming however.

    6. I truly hope you are right, Dan.

    7. Gene;

      I am fortunate in the fact that I have some contacts in the fracking industry so it helps because a lot of this stuff does not make it outside of the industry in the news right now. I will tell you something, the American entrepreneurial spirit is alive and well in the domestic oil and gas industry. It truly is a bright spot for us. I sincerely hope we have some far-sighted leaders who will recognize it as such and work towards making it happen. I think it will make life a lot better for all of us as one of the great blessings we have here in our nation is relatively low cost energy. In that regards we are most blessed compared to elsewhere around the globe.

    8. JMHO as usual.

      If the government could get over it obsession with carbon we could have an Industiral Empire beyond dreams by using all the tight oil and gas this country has.

      Some manufacturing is already being built to take advantage of low natural gas costs and cheap ethane. That's just the beginning.

      It would give us the growing economy we don't have now.

    9. Peter Schiff is invested in the subprime oil market too.

      Its pretty funny that North America thinks it has a hope in competing with Russian oil. I work in Alberta heavy oil. We are acutely aware of this. US shale is acutely aware of nothing.

    10. M;

      you are pretty much aware of nothing and are one of the most egotistical asses I have ever met and that is saying a lot.

      Please go away and leave this board to those of us who have something useful worth saying.

  9. Have roots and investments in the Bakken region. ND now the #2 oil producer in the US....plenty more potential. However, friends in the industry talk of 65 dol. barrel prices as the break-even point.
    Seems unlikely...but 65 oil seems almost as likely as 15 silver did 3 yrs ago.

    1. actually, it seems a little more likely,, as the cards now sit on the table.


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