Thursday, May 31, 2007

Cassandra's 20/20 Foresight on the Yen

A reader recently asked my opinion of the Yen. I was flattered inasmuch anyone would care a toss what I might think about such things following my admittedly long-shot crash-prediction. Undeterred, I climb back on upon my soapbox and reveal to you that, like my feelings about Japan (and all it encompasses) I have a decided love-hate relationship with the Yen.

For in the absence of official intervention - both overt (their >$800bn++ horde) and offical policy (read: ZIRP, nearZIRP and all unnaturally low rates of discount that entice both leveraged speculative carry traders and domestic capital flight), the Yen would be amongst the world's strongest units of exchange, with all that this entails (before the winner's-curse rot of mild deflation, loss of export competitiveness, hollowing industrial economy, and increased imports, etc.) would set in.

Despite the potential allure of the yen of the Yen in an unfettered market coincidental to a normal interest rate regime, we live (and trade) in the world - not as we wish it to be - but as it exists. In this reality, TeamJapan (MoF, BoJ, etc.) has engineered a [globally anti-social IMHO) preemptive policy mix to nix the Yen's unfettered allure by "uglifying" the it in order to preserve parochial mercantile advantage. This, has been, everyone must admit, very effective indeed as USD/Yen, Euro/Yen, KRW/Yen, even RMB/Yen clearly demonstrates.

As I do not see any meaningful change in this policy mix, or the underlying mercantile intention, this means to me: a continued skew of small-size returns in the direction of yen weakness, punctuated with infrequent but nonetheless periodically large fat-tailed returns in the direction of yen strength.

I say this with 20/20 foresight, and am not "talking my book". For when I recognized the reality of this cynical policy intransigence , I threw in the towel and cut the last vestiges of my long yen position last fall at the precise level of 120.20 - not because I didn't think I'd get better at some point (as we did in Feb) but because I am simply couldn't handle the daily angst of a counter-trend position amidst a firmly ensconced, trend.

So the Score on that fixture was an undeniable:
MoF/BoJ -One ; Cassandra Academical - Nil

7:21 PM

No comments: