28th April – Yen feeling a lot like it’s CHF 2010-2011

Well that was an interesting 24 hours!

Lets leave FOMC and Uk & US data for another day. Today just want to talk quickly about the Yen.

I said in one of my start of year pieces that I felt this was going to be the year of the Yen and that it was likely to strengthen.

What I find usual is that I’m often not too far off the money in my big-picture analysis – but I usually undershoot in my expectations! I didn’t think Yen would strengthen as hard and as fast as it did for the first few months of 2016.

When you get such a strong trend its not unusual to see some profit-taking / pauses in the move, and that’s what I thought was happening for most of April. After some fine moves we saw a weakening of the Yen (which must have breathed a sigh of relief for Abe and Kuroda).

I was even beginning to wonder whether the move was over and had the politicians done enough to halt the strengthening of the Yen. Clearly I was wrong about that.

The BoJ release last night was interesting in the fact that despite Abe & Kuroda wanting to weaken the Yen they actually did nothing new/more to halt its strength. And that in itself was enough to cause a Tipping Point avalanche. You had all the people at on the side-lines who bought Yen and then you had all the Yen Shorts who started covering (remember they have to buy to get out of their short position) so you had the Double Whammy and we say Yen move three big numbers against many of the other major currencies.

This reminds me of 2010-2011 and the CHF.  It led to some interesting trading opportunities whereby the world and his wife were all long CHF.  For about a year the SNB huffed and puffed about the strengthening of the CHF post GFC. The said they would do something about it, then said they wouldn’t, then they’d just make an arbitrary intervention when least expected – then do nothing on events when everyone thought they would do something. Finally they couldn’t fudge or avoid it any longer and imposed the EURCHF peg. Which worked, sort of, until it didn’t!

Part of me thinks that the Yen this year is a little bit like that. I still hold to my view that the Yen will be a strong FX play this year and will strengthen compared to the last few years

Until it doesn’t. When Abe & Kuroda will be forced to do something  – whatever that may be. (What can they do? All suggestions are welcome. Please put them on a postcard and send your suggestions to: Mr. H Kuroda, c/o Bank of Japan, Tokyo!)