The Definitive USDJPY Speculation Thread

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Erik T.'s picture
Erik T.
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The Definitive USDJPY Speculation Thread

Since we've enjoyed a great conversation over in the Definitive Dollar Rally thread, I thought I'd start a new thread to discuss another currency that I think has a lot of meaning in the world economy, and which also presents a speculation opportunity: The Japanese Yen.

Several of my hedge fund buddies have been very excited about shorting the Yen against the USD. The rationale for the trade is basically that people (like Peter Schiff) who have been talking up the short USD trade have the right idea, but are way too early. Because the USD remains the world's reserve currency and is most frequently the benefactor of the flight to [perceived] safety trade, many traders I respect are saying that short-DX traders will be wiped out. Recent action in the wake of the Euro crisis confirms that they're right.

But many remain convinced that for all the reasons the short-USD trade will make sense but not for a few more years, they think the short JPY trade makes sense right now. They are convinced that Japan's fiscal and demographic problems are even worse than the U.S., and that Japan will be the first "big currency" to face crisis.

Of course capital flight from the Eurozone has given the JPY a huge boost - just as it's given the USD a huge boost. But that would appear to be creating a short entry opportunity. Try to feel out the crest of the Euro-induced wave, then start shorting JPYUSD on speculation that the yen will fall faster than the dollar when the Euro pressures wear off.

This seems to me like a more sensible trade than the short-DX trade many have advocated. I'm curious what other traders (rickets, I'm tawkin ta yous) here think about the prospects for this trade. The hesitation I have comes from how far JPYUSD got pushed up by the action in the Euro. I would have expected a huge move in JPYEUR. But since the USD was also a benefactor of flight capital from Europe, I would have expected both the USD and JPY to rise in unison, for the most part. Instead the JPY seems to have gotten a whole lot more boost from the EUR flight capital than the USD did. I don't think the mess in Europe is anywhere close to over, so I'm having a hard time deciding what's an attractive entry price for the short yen trade.

Best,

Erik

 

Erik T.'s picture
Erik T.
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Re: The Definitive USDJPY Speculation Thread

Here's a letter from Hugh Hendry. He's strongly of the opinion that shorting the yen is a mistake.

http://www.zerohedge.com/sites/default/files/Eclectica%20Letter%20May%20...

He makes many excellent points, but I'm still undecided. Others whom I respect still have high conviction for this trade, viewing the current strength in the yen as a selling opportunity.

Erik

Farmer Brown's picture
Farmer Brown
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Re: The Definitive USDJPY Speculation Thread

I was just about to post that Hendry article after reading your opening post.  I guess you now have "both" sides of the argument!  It's hard to find holes in Hendry's arguments and I wouldn't exactly relish taking the other side of Hendry's trades!

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JAG
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Re: The Definitive USDJPY Speculation Thread

Great topic Erik,

Machinehead turned me on to a market analyst that I really like, Guy Lerner at The Technical Take blog, perhaps you read him already. He actually has been bearish on the Yen the last few months, but the recent action has him rethinking that trade.

The Japanese Yen

Several weeks ago reader Fu Manchu politely suggested that "he just didn't see it" with regards to my short Yen position. Several months back, it was looking that I was correct in my "call" that the Yen was going lower, but here we are with risk rising and investorsavoiding risk, and well the Yen is rising as it appears the carry trade that funded the risk taking is coming off. Anyway, back to Fu and his suggestion of "Guy, take another look". I have, so thank you for the suggestion, and it just might be time to pull the plug on this trade. Here are my technical thoughts.

I find it rather amazing that Japan's currency can rise with their unprecedented history of "printing" I guess it just goes to show you that things are not always as simple as they first appear.

JAG's picture
JAG
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Re: The Definitive USDJPY Speculation Thread

Thanks for the overdue dosage of Hendry. I particularly liked a quote that he cited:

Sometimes there is so much writing on the wall that the wall falls down.

Brilliant.

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ashvinp
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Re: The Definitive USDJPY Speculation Thread
JAG wrote:

Thanks for the overdue dosage of Hendry. I particularly liked a quote that he cited:

Sometimes there is so much writing on the wall that the wall falls down.

Brilliant.

Or this one from China's Vice Commerce Minister Zhong Shan:

Quote:

...water doesn't boil if it is heated to 99 degrees Celsius. But it will boil if it is heated by one more degree.

Sums up my view of the economic, societal and environmental forces at work right now... tipping points abound.

SteveW's picture
SteveW
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Re: The Definitive USDJPY Speculation Thread
ashvinp wrote:

Or this one from China's Vice Commerce Minister Zhong Shan:

Quote:

...water doesn't boil if it is heated to 99 degrees Celsius. But it will boil if it is heated by one more degree.

Sums up my view of the economic, societal and environmental forces at work right now... tipping points abound.

Interesting quote but it isn't quite that simple. The quote is true if the heating occurs at sea level but in Denver the water will have been merrily boiling ever since the temperature hit about a constant 94 degrees Celsius.

Thus there are tipping points but there are also local circumstances and I would be surprised if the same did not hold for economic, societal and environmental forces.

ashvinp's picture
ashvinp
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Re: The Definitive USDJPY Speculation Thread
SteveW wrote:
ashvinp wrote:

Or this one from China's Vice Commerce Minister Zhong Shan:

Quote:

...water doesn't boil if it is heated to 99 degrees Celsius. But it will boil if it is heated by one more degree.

Sums up my view of the economic, societal and environmental forces at work right now... tipping points abound.

Interesting quote but it isn't quite that simple. The quote is true if the heating occurs at sea level but in Denver the water will have been merrily boiling ever since the temperature hit about a constant 94 degrees Celsius.

Thus there are tipping points but there are also local circumstances and I would be surprised if the same did not hold for economic, societal and environmental forces.

Well, no analogy is perfect and I agree local circumstances will play a signficant role in determining ultimate outcomes. But generally, no community will be spared from the massive decomplexification that is about to occur across all fields.

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