G7 'preparing to drive down the yen'

[Rajiv]

G7 'preparing to drive down the yen'http://business.timesonline.co.uk/to...cle5020741.ece


A restart of the Yen Carry Trade?

Members of the Group of Seven (G7) nations may be considering a joint market intervention to prevent a further surge in the yen as the Japanese currency’s sharp rise threatens the world’s second biggest economy and other Asian economies.

The yen, which is trading at around Y93 against the greenback, lurched higher today, despite the afternoon warning statement from the G7 and direct comments by the Japanese Finance Minister that currency traders said amounted to “the clearest possible” signs the Japanese Government was poised to intervene in the markets.

Analysts interpreted a rare currency volatility warning by the G7 as a sign that Japan and others may step in to foreign exchange markets and artificially force down the Japanese currency if the yen breaches the Y90 level against the US dollar.

Japanese government sources told The Times that if it intervenes to fight the prevailing market tide and weaken the yen, it “may do so with the support of other G7 nations”.

[don]

Re: G7 'preparing to drive down the yen'

Hudson's posted Monday piece has a large portion dedicated to the Yen Carry Trade.

[phirang]

Re: G7 'preparing to drive down the yen'

Yea, I sold all my Yen today. Live to fight another day, eh?

[hayekvindicated]

Re: G7 'preparing to drive down the yen'

I was tempted to close my Yen position but didn't.

My Yen position is essentially a Pound short. I am sceptical that the Yen will depreciate massively against the Pound when the BOE is looking to chop interest rates like there's no tomorrow. The lower Ł interest rates go, the less attractive Ł becomes to carry traders. Then its a no-brainer to dump the Pound (also given the UK Government's decision to bail out the banks with Ł2 Trillion - if that's not a disaster for the currency I don't know what is).

I also do not see the Yen going down the crapper so easily because if you see what the Fed has been doing to the US Dollar, it has had the opposite short term effect of what we thought it would. The Fed's lending of trillions to the banks ought to drive the Dollar down but it hasn't done that.

Of course BOJ could screw the Yen if it wanted to, but if that happened, I see the Dollar strengthening against the Yen rather than Sterling strengthening against the Yen. The latter remains a lower risk trade in my view. But we shall see. I watch the rates like a hawk. Any adverse action and Im out.

[phirang]

Re: G7 'preparing to drive down the yen'

I was tempted to close my Yen position but didn't.

My Yen position is essentially a Pound short. I am sceptical that the Yen will depreciate massively against the Pound when the BOE is looking to chop interest rates like there's no tomorrow. The lower Ł interest rates go, the less attractive Ł becomes to carry traders. Then its a no-brainer to dump the Pound (also given the UK Government's decision to bail out the banks with Ł2 Trillion - if that's not a disaster for the currency I don't know what is).

I also do not see the Yen going down the crapper so easily because if you see what the Fed has been doing to the US Dollar, it has had the opposite short term effect of what we thought it would. The Fed's lending of trillions to the banks ought to drive the Dollar down but it hasn't done that.

Of course BOJ could screw the Yen if it wanted to, but if that happened, I see the Dollar strengthening against the Yen rather than Sterling strengthening against the Yen. The latter remains a lower risk trade in my view. But we shall see. I watch the rates like a hawk. Any adverse action and Im out.

You did the right thing, as the sterling is hosed. I was long yen/sht USD, and since the G7 we're clearly talking about THAT trade...

[laphroaig]

Re: G7 'preparing to drive down the yen'

You did the right thing, as the sterling is hosed. I was long yen/sht USD, and since the G7 we're clearly talking about THAT trade...

Phirang, interested to know why you think sterling is more "hosed" than the dollar...

I see Britain and the US as being in very similar positions in terms of personal debt, government deficits etc.

The big difference between them is the reserve currency status of the USD, which I see as the main reason why the USD has spiked recently as everyone rushes to "safety".

The way I see it, the falls in Sterling are going to massively help with the UK trade deficit, whereas things are getting worse for US exporters (thanks to the "reserve currency" thing).

The GBP may drop further in the short term as a result of the current flight to USD. But looking a year or so out, what's your argument for further falls of sterling against the dollar?

I have a lot of GBP (I am a Brit living in the US, but looking to move home some day) and I am certainly not trading them for dollars right now (though I do wish I had done so a couple of months ago!).

[GRG55]

Re: G7 'preparing to drive down the yen'

Yea, I sold all my Yen today. Live to fight another day, eh?

And what did you buy when you "sold"? US Dollars?

If yes, I'm sure Roubini would be proud...

[c1ue]

Re: G7 'preparing to drive down the yen'

The way I see it, the falls in Sterling are going to massively help with the UK trade deficit, whereas things are getting worse for US exporters (thanks to the "reserve currency" thing).

Scotch-man,

What you say is true, but unfortunately which nation owns the 3rd largest (absolute value) currency account deficit? And the 12th largest CAD per person?

United Kingdom

-111,000

61,186,000

-$1,814.14

The US exports a lot of food, machinery, aircraft, and intellectual property/entertainment.

What does the UK export? Or more importantly, what will the UK export as North Sea oil fields start declining production?

While the UK has taken on many of the economic characteristics of its ertwhile colonial possession to the west, the UK does not have a reserve fiat currency.

Thus the 'injections' into the banking system will directly hurt the GBP much more quickly than the US and the dollar - the US has all those foreign dollar holders as a cushion.

Then circling back around to the above statistics: few nations among the top 20 CAD list have a strong currency, and the GBP was likely the strongest of all. Thus the CAD dollar position is actually de-accentuated by the past strength of the GBP, and will be re-accentuated by a corresponding weakness in the GBP.

More importantly, if I use the $1814 per person number with a 2 US$ per 1 GBP ratio and a per capita income of 24,700 GBP (2004, source Wiki), then Britain's CAD is 3.6% of median household income.

But if GBP/USD goes to 1 to 1, now we're talking 7.2% of median household income. Is that sustainable? I think not.

In contrast the US' ratio is 2394/48000 (2008, source wiki) = 5.0% - also bad, also unsustainable at present exchange rates much less at worse exchange rates.

But we already know what's going to happen over here.

[phirang]

Re: G7 'preparing to drive down the yen'

Scotch-man,

What you say is true, but unfortunately which nation owns the 3rd largest (absolute value) currency account deficit? And the 12th largest CAD per person?

United Kingdom

-111,000

61,186,000

-$1,814.14

The US exports a lot of food, machinery, aircraft, and intellectual property/entertainment.

What does the UK export? Or more importantly, what will the UK export as North Sea oil fields start declining production?

While the UK has taken on many of the economic characteristics of its ertwhile colonial possession to the west, the UK does not have a reserve fiat currency.

Thus the 'injections' into the banking system will directly hurt the GBP much more quickly than the US and the dollar - the US has all those foreign dollar holders as a cushion.

Then circling back around to the above statistics: few nations among the top 20 CAD list have a strong currency, and the GBP was likely the strongest of all. Thus the CAD dollar position is actually de-accentuated by the past strength of the GBP, and will be re-accentuated by a corresponding weakness in the GBP.

More importantly, if I use the $1814 per person number with a 2 US$ per 1 GBP ratio and a per capita income of 24,700 GBP (2004, source Wiki), then Britain's CAD is 3.6% of median household income.

But if GBP/USD goes to 1 to 1, now we're talking 7.2% of median household income. Is that sustainable? I think not.

In contrast the US' ratio is 2394/48000 (2008, source wiki) = 5.0% - also bad, also unsustainable at present exchange rates much less at worse exchange rates.

But we already know what's going to happen over here.

Most importantly, the US has the extortion racket (mortgages) and the enforcement (CIA,NSA, Wahabi rebels, Shia rebels, Quebecquois, etc).

No other country has people pay them to buy their stuff except the US. That's the miracle of a global reserve currency and generally incompetent foreign competitors.

[phirang]

Re: G7 'preparing to drive down the yen'

And what did you buy when you "sold"? US Dollars?

If yes, I'm sure Roubini would be proud...

I dumped into mining juniors... where else!

[c1ue]

Re: G7 'preparing to drive down the yen'

Most importantly, the US has the extortion racket (mortgages) and the enforcement (CIA,NSA, Wahabi rebels, Shia rebels, Quebecquois, etc).

No other country has people pay them to buy their stuff except the US. That's the miracle of a global reserve currency and generally incompetent foreign competitors.

More semi-coherent drivel.

Why is it so many people extrapolate short term trends into long term ones?

Or put another way: past performance is no indicator of future results.

Except with content-less posters.

To skewer your pathetic analogy: what did the British do with Opium in China? Or the British empire with their possessions? Sure, debt wasn't used - but debt is merely a detail.

Ultimately it was the US' economic and military hegemony which led to this situation, and equally the abuse will see the end of said economic and military hegemony.

Pax Britannica was ended via wars; Pax America will end via an economic own goal.

[phirang]

Re: G7 'preparing to drive down the yen'

More semi-coherent drivel.

Why is it so many people extrapolate short term trends into long term ones?

Or put another way: past performance is no indicator of future results.

Except with content-less posters.

To skewer your pathetic analogy: what did the British do with Opium in China? Or the British empire with their possessions? Sure, debt wasn't used - but debt is merely a detail.

Ultimately it was the US' economic and military hegemony which led to this situation, and equally the abuse will see the end of said economic and military hegemony.

Pax Britannica was ended via wars; Pax America will end via an economic own goal.

You think so? I encourage you to watch the spread on agencies before and after the G20 meeting.

If they widen, then yes, I'm wrong. If the close, then ha!

[phirang]

Re: G7 'preparing to drive down the yen'

More semi-coherent drivel.

Why is it so many people extrapolate short term trends into long term ones?

Or put another way: past performance is no indicator of future results.

Except with content-less posters.

To skewer your pathetic analogy: what did the British do with Opium in China? Or the British empire with their possessions? Sure, debt wasn't used - but debt is merely a detail.

Ultimately it was the US' economic and military hegemony which led to this situation, and equally the abuse will see the end of said economic and military hegemony.

Pax Britannica was ended via wars; Pax America will end via an economic own goal.

You think so? I encourage you to watch the spread on agencies before and after the G20 meeting.

If they widen, then yes, I'm wrong. If the close, then ha!

[laphroaig]

Re: G7 'preparing to drive down the yen'

More importantly, if I use the $1814 per person number with a 2 US$ per 1 GBP ratio and a per capita income of 24,700 GBP (2004, source Wiki), then Britain's CAD is 3.6% of median household income.

But if GBP/USD goes to 1 to 1, now we're talking 7.2% of median household income. Is that sustainable? I think not.

That's somewhat disingenuous, because it presumes that the British are going to buy exactly the same stuff they did before, despite the change in exchange rates.

Going forward, Britain's new aircraft purchases will be Airbus not Boeing (now at a 25% relative discount). Vacations in New York and Florida, will be substitued by vacations in Paris and Spain (or worst case, Bognor Regis).

There are obviously two competing tendencies here (American prices up vs. fewer American goods purchased), and it's not clear which would win out, but it seems to me that the recent flight to the dollar, which is based on panic rather than strong US fundamentals, is likely to be extremely damaging to the US's remaining export capabilities, and could be something of a let-off for Europe and the UK.

[hayekvindicated]

Re: G7 'preparing to drive down the yen'

I got my ass whipped nicely today on my Yen trade but have stayed short.

Paul Tudor Jones once said that the greatest challenge in trading is getting your ass thoroughly whipped every so often. The markets regularly test the nerves and confidence.

Sterling (that lousy currency) has rallied from $1.52 to almost $1.60 now!! If that is not incredible I don't know what is. The Yen also got whipped - even worse. I surrendered a chunk of my gains on that trade today.

I agree with the bearish comments re: Sterling. Actually, they don't go far enough if you ask me. Britain does not have the resources to bail out the cowboys in the City of London who will eventually sink the currency and with it, this ridiculous so-called "miracle economy".

But short term bear market spikes are painful to watch when you're on the other side of the trade. Im staying short though. Even with the Japanese Government's desire to drive down the Yen, its a better place to be than Sterling. And if Im wrong, my savings are worth more in any event.