Monday, June 30, 2014

Strong Yen Coming?

A few months ago I noticed a tendency for strength in the Japanese Yen. The chart shows a rising triangle pattern in the context of a long decline. The decline in the Yen has been intentional on the part of the Japanese govt. and central bank. For many years it has been possible to borrow in Yen and invest at higher rates of return around the world. The so-called "carry trade".

Any hint of that trade coming to an end has been hard on world markets. But in the meantime many of the countries of the world have tried to get a piece of that action by lowering interest rates and reducing currency values in an effort to stimulate their own economies. This is the problem with worldwide free trade. The race to the bottom in the effort to stimulate. The same problem occurs in the individual states in the U.S., as the states cut taxes on business and starve state government and public service as they try to attract businesses to the state. But I digress.

A rise in the Yen seems to be correlated with a rise in gold. And a decline in the US Dollar.
The chart has been marked with the areas of correlation.

There is a trade in here somewhere..........

Timing and loss control are the most important to trading.
Control risk,

Later addendum 0845 PST:

One scenario that fits a strong yen would be a resurgence of inflation in Japan and a rise in Japanese interest rates that came from the reversal of the yen carry trade. In essence this would be the Japanese exporting their inflation to the world. The yen would rise and the USD (world reserve currency/peg) would fall.

Even later 0902 PST:

So, I Google "yen carry trade". And this is one of the entries that caught my eye:
Yen Carry and US Stocks

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