Yen Hits 14 Year High vs US Dollar; Nikkei Sinks

The yen rallied to a 14-year high against the dollar on speculation Japanese monetary authorities will tolerate further appreciation of the currency.

Finance Minister Hirohisa Fujii said today the government needs to take action on “abnormal” currency movements. Earlier, Vice Finance Minister Yoshihiko Noda said the government isn’t considering stepping into the currency market, Reuters reported. The Swiss franc fell against the euro and the dollar on speculation the nation’s central bank sold the currency after it climbed to parity with the greenback yesterday for the first time in 19 months.

“Fujii’s comments failed to dispel views that Japan won’t intervene immediately,” said Yuki Sakasai, a Tokyo-based foreign exchange strategist at Barclays Bank Plc. “Such a view makes it easier for traders to buy the yen.”

Japan’s currency rose to as high as 86.30 yen per dollar, the strongest since July 1995, before trading at 86.93 as of 8:38 a.m. in London from 87.35 yesterday in New York.

The dollar reached a post-World War II low of 79.75 yen on April 19, 1995.

“I am watching these movements, right now it’s time to watch them closely,” Fujii told reporters in Tokyo today. “We need to take appropriate action against abnormal movements.”

“Despite reported comments that ruled out intervention, we shouldn’t be careless about this possibility,” said Osamu Takashima, chief foreign-exchange analyst at Bank of Tokyo- Mitsubishi UFJ Ltd., a unit of Japan’s biggest bank. “The possibility of actual intervention may increase further if the yen approaches 80 and the euro rises to $1.60.”

I freely admit I have recently been negative on the Yen and I still am.

At 200% debt to GDP Japan is in trouble as noted in Deflation Returns To Japan; Black Hole Madness In U.S.

For now, remember the market is the final arbiter, not my opinion.

Nikkei closes at four-month low

Global equity markets have been on a tear since March but one would not know it by looking at the Nikkei in isolation. Please consider Nikkei closes at four-month low.

November 26 – Japan’s Nikkei average closed at a four-month low on Thursday as the yen hit a 14-year high against the dollar, pressuring exporters, but losses were braked by rises in resource-linked shares after gold hit a record high.

The dollar broke below Y87 and fell as far as Y86.29 on trading platform EBS, its lowest since July 1995. Investors fret about a strong yen because it eats into exporters’ profits when repatriated.

The Nikkei stands 6 per cent higher this year and is hitting four-month lows on a daily basis. In contrast, the Dow and Nasdaq recently hit 13-month highs and have gained 19 per cent and 38 per cent this year, respectively.

“Looking only at its rise against the dollar is a mistake. A lot of companies have set their currency rates at Y90 to the dollar, but some have also set them at Y85,” said Takashi Ushio, head of investment strategy at Marusan Securities.

“You have to look at the yen’s performance against the euro too, where a lot of companies have set their rate at Y125 per euro. Should this level be broken, things could be really tough, as who knows what the dollar/yen rate might be at that point.”

Dollar Sinks S&P Futures Down

One thing of note is that S&P 500 futures are down 14 points and commodities are down as well even though the dollar is sinking. This is a dramatically different change from the norm.

Of course this is a holiday and we must see if there is follow through. This could be a one day wonder.

The important point is that if this sticks, or if equities sink while the Yen and/or Dollar rally, the reflation trade is finally over.

Can it be that the much despised treasuries are the only thing that will rally while everything else sinks? Yes, that is entirely possible given how lopsided anti-dollar sentiment is vs. everything else.

Mike "Mish" Shedlock