Courtesy of Mish.
The Yen currently trades about 115 to the US dollar. At the end of 2011 the Yen was about 77 to the dollar. That is a decline of roughly 33%.
Yet, Japan’s inflation barely budged. Japan’s prime minister Shinz? Abe is not pleased.
On October 31, the Bank of Japan pledged “Unwavering Determination” to Get 2% Inflation. The Yen plunged and Nikkei futures rose limit up.
What’s Next?
To quote Yogi Berra, “It’s tough to make predictions, especially about the future.” I know full well, having made some spectacular calls but also some very bad ones over the past few years.
Nonetheless, via email, Society General’s Albert Edwards expects a “Tidal Wave of Westward Deflation” and “Yen at 145 to US Dollar by March“.
¥145/$ by end of March – Albert Edwards
Forecast timidity prevents anyone forecasting ¥145/$ by end of March – so I will.
We revisit the most important chart investors should be focused on, namely the yen/dollar chart. The market still does not seem to have grasped the significance of this phase of currency wars. It reminds me of the 2006/07 period when falling US house prices and then widening corporate bond spreads were totally ignored by upbeat equity investors until it was too late. The yen is set to follow the US dollar DXY trade – weighted index by crashing through multi-decade resistance – around ¥120. It seems entirely plausible to me that once we break ¥120, we could see a very quick ¥25 move to ¥145, forcing commensurate devaluations across the whole Asian region and sending a tidal wave of deflation westwards.
It it is worth noting just how aggressive the BoJ has become with the central bank balance sheet already at around 55% of GDP and rapidly heading higher still! Japan is an economy a third of the size of the US doing roughly the same dollar QE as the Fed did at its peak!
The move to crank up the Japanese printing shouldn’t have been a surprise. These guys at the BoJ, unlike the ECB, WILL do whatever it takes….
