Friday, July 30, 2010

Tough Love finally for the EUR

Month-end requirement is distorting some of the price action, especially when it comes to the JPY. Economic releases O/N showing that Japan’s growth slowed and unemployment rising should not be capable of pushing the currency to trade at new yearly highs vs. the dollar. Even the bond market was busy, selling the belly of the curve to the Japanese, again pushing prices out of whack. Price action involving month end requirements is always confusing. The market is caught flat-footed. It had been anticipating further broad based dollar selling for US hedge rebalancing. The EUR nosedive will be attributed to the markets nervous reaction to global bourses back peddling. Will the US 2nd Q GDP confirm the markets bearish view of their economy? No matter what, the color red is prominent on dealers trading books already this morning.

The US$ is weaker in the O/N trading session. Currently it is lower against 111 of the 16 most actively traded currencies in another ‘whippy’ trading range.

Forex heatmap

Yesterday’s US jobless claims came in bang on market expectations (+457k). Many had believed that ‘the seasonals’ would push claims slightly above the trend last week. The four-week average for claims (a stronger gauge of employment trends) fell -4.5k to +452.5k, the lowest level in three months. Even continuing claims came in line with expectations. The seasonally adjusted series for claims happened to advance by +81k to +4.565m vs. a forecast of +4.6m. Digging deeper, the Fed benefits fell by -269k vs. a projected decline of -300k. It’s worth noting that initial claims are about -21% below last years level, while continuing claims is about -26% less. After yesterday’s claims data analysts expect the labor force participation rate will increase, which should push the US unemployment rate higher to +9.7% vs. +9.5% next week. Market consensus for payrolls stands at +110k thus far.

The USD$ is higher against the EUR -0.18% and lower against GBP +0.14%, CHF +0.40% and JPY +0.55%. The commodity currencies are mixed this morning, CAD +0.17% and AUD -0.17%. Yesterday’s Canadian Industrial Product Price Index (IPPI) unexpectedly slipped -0.9% last month, led by petroleum and coal products (-2.3%) and primary metal products (-2.9%). The Raw Materials Price Index (RMPI) also happened to decline -0.3%, largely due to lower prices for non-ferrous metals and animals products. It was the second consecutive monthly decrease. For the IPPI, the 3-month moving average suggests that core-producer prices (ex-food and energy) continue to trend sideways.
The CAD weakened vs. its southern neighbor as equities and crude happened to reverse its earlier advances and in turn temporarily reduced the appeal of higher-yielding currencies. For most of this week the loonie has performed better on the back of stronger commodity and equity prices. Last week the BOC tightened rates 25bp. The interest rate differential scenario seems to be getting the biggest support for now, despite it being a ‘dovish hike’. Governor Carney stated that there was no pre-ordained path for interest rates in Canada. According to his dovish communiqué ‘the global economic recovery is proceeding, but, is not yet self-sustaining’. The 25bp hike last week will ‘leave considerable monetary stimulus in place’, with both the core and total inflation to advance at about a +2% annual rate through 2012 (within their target zone). Some will argue that with signs of a significant slowdown underway in the US, it’s possible that the BOC may be persuaded to move back to the sidelines on the Sept. go-around. Carney has given himself the latitude to step back and assess global growth for the 3rd Q. Medium term momentum points to a stronger loonie, but, that all depends on whether the big dollar is coveted for risk aversion trading strategies again. On dollar rallies there are CAD buyers.

It seems that the JPY has dominated all trading sessions thus far and the higher yielding commodity currencies have managed to be included. The AUD happened to pare more of this weeks gain on future reports expected to show that China’s growth is slowing and on last nights data showing that bank lending grew last month at the weakest pace in seven months. China is Australia’s largest trading partner. Overall, there is still a sign of concerns that the world economy is in a fragile recovery phase. The Kiwi has been under pressure since and falling against all its major trading partners. Earlier this week and after a surprisingly weaker than expected CPI headline print (+0.6% vs. +1%), the AUD was pressurized as the futures traders priced out an RBA tightening next week. This does not rule out the possibility that Governor Stevens will not hike further in the calendar year. Recently, policy makers stated that they are ‘reinstating their view that domestic growth will be about trend’ and are ‘not alarmed by the global demand backdrop’. In retrospect, policy makers remain ‘very upbeat’. Because of equities actions, the market is a cautious buyer on pullbacks, wary that the recent strong rally technically may be overdone (0.8987).

Crude is little changed in the O/N session ($77.76 down -60c). Crude prices happened to ‘too and fro’ yesterday. At one point it aggressively advanced on the back of a weaker dollar and an upbeat equity market. But, that scenario changed and pared the commodity’s advances caused by the signs that a slowing economic recovery in the US will limit fuel consumption in the world’s second-largest energy user. The weekly EIA report happened to add to the commodity’s bearish sentiment. The inventory data stumped all market expectations with its surprising increase. The headline print had stocks increasing +7.3m barrels vs. a market expectation of +1.7m. Couple this with last weeks +3.1m gain and we have a market flushed with the ‘black-stuff’. Despite global demand slowly improving it’s currently have little effect on supplies. Somewhat of a surprise was the lower than expected fuel inventory gains. Gas stockpiles rose by +100k barrels, below expectations for a build of +500k, while distillate fuels advanced by +900k barrels. Analysts had been expecting an increase of +2.1m barrels. The refinery utilization rate also happened to fall to 90.6%, below the expected 91%. The build in inventories even with some weather related production shut downs continue to paint a bearish fundamental picture for the energy sector. Of late, the commodity has been trading in a tight $5 range. The ‘historical’ US summer driving season is over, coupled with a lack of tropical activity in the Gulf are ingredients for justifiable weaker energy prices.

Gold gained for a second consecutive day on speculation that prices near a three-month low will spur increased physical and investment demand. Technically some believe that this week’s decline has been overdone. All week investors have been caught wanting higher risk and seeking higher returns, and owning gold is currently not the answer. With the EUR continuing to stabilize against most of its trading partners had the market selling the asset class. Bigger picture, technically, the bullish sentiment had been on hiatus with profit taking testing the medium term support levels. Fundamentally, in the short term the metal will find it difficult to rally as this is the ‘slowest’ season for physical demand. Technical analysts are trying with might to convince the market that these levels provided a good buying opportunity. The current problem is that the market has built in a large insurance premium over the past few months and with some market stability nervous investors will want to lighten their positions even more. Year-to-date, the commodity has gained +5.8% and is in danger of further losses ($1,171 -60c).

The Nikkei closed at 9,537 down -159. The DAX index in Europe was at 6,112 down -22; the FTSE (UK) currently is 5,295 down -19. The early call for the open of key US indices is higher. The US 10-year eased 4bp yesterday (2.97%) and is little changed in the O/N session. The last of this week’s $104b auctions disappointed. The $29b 7-year sale was 2.78 times subscribed, weaker the four auction average of 2.83. Even the indirect bidders disappointed, taking down 42% as opposed to the 50.9% four-auction average. The direct bidders happened to take down 9% vs. the 10.4% average. Historically, the 7-year basket is always a difficult sell and lying on top of historical low yields does not make it any easier. However, recently the 5-7 year basket has been somewhat attractive to risk adverse trading strategies as traders do not want to be caught too far out the curve. Demand is there if equities underperform. The market will take its cue from this mornings GDP numbers.

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Boom Time for Forex

It has been three years since the Bank of International Settlements’ last report on foreign exchange was released. Since then, analysts could only speculate about how the forex market has evolved and changed.

The wait is now over, thanks to a huge data release by the world’s Central Bank, which showed that daily trading volume currently averages $4.1 Trillion, a 28% jump since 2007. Trading in London accounted for 44% of the total, with the US â€" in a distant second â€" claiming nearly 19%. Japan and Australia accounted for 7% and 5%, respectively, with an assortment of other financial centers splitting the remainder.

This data is consistent with a recent survey of fund managers, which indicated a growing preference for investing in currencies: “Thirty-eight per cent of fund managers said they were likely to increase their allocations to foreign exchange, while 37 per cent named equities and 35 per cent commodities. Currency was most popular even though this was the asset class where managers felt risks had risen most over the past 12 months.” In short, the zenith of forex has yet to arrive.

There are a few of explanations for this growth. First, there are the inherent draws of trading forex: liquidity, simplicity, and convenience. Second, investors are in the process of diversifying their portfolios away from stocks and bonds, which have underperformed in the last few years (on a comparative historical basis). As investors brace for a long-term bear market in stocks and low yields on bonds for the near future (thanks to low interest rates), they are turning to forex, with its zero-sum nature and the implication of a permanent bull market. Additionally, programmatic trading and risk-based investing strategies are causing correlations in the other financial markets to converge to 1. While there are occasional correlations between certain currencies and other securities/commodities markets, the forex markets tend to trade independently, and hence, represent an excellent vehicle for increasing diversification in one’s portfolio.

There is also a more circumstantial explanation for the rapid growth in forex: the credit crisis. In the last two years, volatility in forex markets reached unprecedented levels, with most currencies falling (and then rising) by 20% or more. As a result, many fund managers were quite active in adjusting their portfolios to reduce their exposure to volatile currencies: “The volume growth was really a result of the volatility and the fact that you had real end users actively hedging their exposures.” Another contingent of “event-driven” investors moved to increase their exposure to forex, as the volatility simultaneously increased opportunities to profit. Moreover, these adjustments were not executed once. With a succession of mini-crises in 2009 and 2010 (Dubai debt crisis, EU sovereign debt crisis) and the possibility of even larger crises in the near future, investors have had to monitor and rejigger their portfolios on a sometimes daily basis: “If you have a big piece of news, such as the Greek debt crisis, there’s more incentive to change your position,” summarized one strategist.

What are the implications of this explosion? It’s difficult to say since there is a chicken-and-egg interplay between the growth in the forex market and volatility in currencies. [In theory, it should be that greater liquidity should reduce volatility, but if we learned anything from 2008, it is that the opposite can also be the case]. As I wrote last week, I think it means that volatility will probably remain high. Investors will continue to adjust their exposure for hedging purposes, and traders will churn their portfolios in the search for quick profits.

It will also make it more difficult for amateur traders to turn profits trading forex. There are now millions of professional eyes and computers, trained on even the most obscure currencies. As if it needed to be said, forex is no longer an alternative asset.

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Wednesday, July 14, 2010

Da Bears EUR offside

It’s back to the drawing board for ‘da bears’ as the EUR has gained +6.6% against the dollar since hitting a four-year low in the first week of June. Sitting on its recent highs, glancing back, the lows are looking further and further away. The EUR buoyed by seasonal earnings, stronger European debt auctions and weaker US data seems to want to test its upper technical resistance levels of 1.2950-1.3000. The market remains apprehensive about today’s data. Will this morning’s US retail sales print and the FOMC minutes detract from the latest optimism about growth? The sales figures are expected to provide further evidence that the economy lost momentum towards the end of 2nd Q. While the FOMC communiqué did provide a more downbeat statement, reflecting the weaker tone of the incoming economic data, most likely did not warrant a discussion on quantitative easing. After this, the focus is back to China and GDP print this evening.

The US$ is mixed in the O/N trading session. Currently it is higher against 9 of the 16 most actively traded currencies in a ‘subdued’ trading range.

Forex heatmap

Yesterday’s widening in the US trade deficit from -$40.3b in Apr. to an 18-month high of -$42.3b in May was all due to an increase in the non-petroleum deficit. The real trade deficit, which is what matters for real-GDP growth, widened from $44.2bn to $46.0bn. Analysts project that if it were to remain broadly steady last month, net trade would subtract more than -1% from annualized GDP growth in the 2nd Q. That print, would certainly throw a ‘cat amongst the pigeons’ on the market’s estimate of a -0.2% decline. That been said, analysts will wait for this morning US retail sales data before laying claim to any predictions. One should remember that the trade data was for May, and does not reflect the slowdown in activity that other indicators have highlighted of late.

The NFIB (National Federation of Independent Businesses) small business survey reported a decline in the headline optimism index, from 92.2 to 89.0 in July. This has reversed most of the gains witnessed over the past two months. Digging deeper, the weakness was widespread, with the expected capital expenditure, inventories, earnings and sales sub-categories all falling. Consumer confidence is the key component in driving growth. Of late, global confidence indicators are experiencing a weakening bias.

The USD$ is lower against the EUR +0.01% and GBP +0.42% and higher against the CHF -0.33% and JPY -0.46%. The commodity currencies are stronger this morning, CAD +0.33% and AUD +0.38%. Owning the loonie is like a winning lottery ticket. It continues to pay out. Stellar fundamental reports of late have traders increasing bets that the BOC will hike rates for the remainder of the year. It seems to be a done deal that Governor Carney will raise +25bps next Tuesday and perhaps another +25bps in Sept. At +1%, Carney has the latitude to step back and assess global growth for the 3rd Q, which in fact could persuade policymakers to ‘skip a beat’ and pause, so that they do not get too far ahead of their southern neighbors. With risk appetite being better than it has been over the last trading week favors growth yield sensitive currencies like the AUD and loonie. Any dollar rallies will only give speculators a better ‘average’ opportunity to own the CAD. It’s difficult to find any technical or fundamental reason to ‘not’ own the currency, whether it’s growth, the BOC attempt to normalize rates somewhat (+0.50%) or as a safer-haven proxy. Couple this with commodities has speculators wagering bets that the CAD will outperform other economies whose monetary policy is expected to experience a prolonged period of near-zero benchmark rates. For most of this month, the loonie has followed equities, in fact, the currency has a +85% correlation with the Dow. On the crosses, CAD is holding its own and under normal conditions is seen as a safer way to play a global economic recovery with links to commodities and less banking.

The AUD is trading within proximity of its three week high on the back of buoyant regional bourses and confidence reports. Thus far, stronger reported earnings in the US is pressurizing the ‘must have’ risk-aversion currencies and promoting the growth sensitive, higher yielding and commodity based ones. It seems that the only immediate concern for the currency could be the looming federal election to be called by new PM Gillard. Currently, there is little evidence that the overall positive sentiment is running out of momentum. Last week we saw that there was nothing better to drag a currency higher than strong employment numbers. This week, economic sentiment seems to rule the coop. Last week, Governor Stevens left the cash O/N rate unchanged for a second consecutive month (4.50%). In his following communiqué, the RBA stated that consumer spending and business investment are expanding. Policy makers are ‘reinstating their view that domestic growth will be about trend’ and are ‘not alarmed by the global demand backdrop’. In retrospect, policy makers remain ‘very upbeat’. Because of equities actions, the market is a cautious buyer on pullbacks, wary that the recent strong rally technically may be overdone (0.8833).

Crude is little changed in the O/N session ($77.10 -5c). Crude prices rose yesterday, erasing some of this weeks earlier declines on earning’s optimism that is fuelling an equity rally that may signal an economic recovery in the US. With the dollar also declining vs. the EUR has increased the appeal of commodities as an alternative investment. Last week, the black-stuff had a + 5.5% gain, the biggest rally in six weeks, as a drop in jobless claims ‘bolstered speculation that the country would sustain its economic recovery’. Later this morning the market expects another weekly draw down on stocks, however, the headline print is ‘not’ expected to be as negative as the last report. It revealed a drawdown of -5m barrels, somewhat inline with market expectation because of hurricane Alex, but, it was the other subcategories that were capable of reining in the price advance. Data showed an increase of +1.3m barrels for gas stockpiles and an increase of +300k for distillates stocks (heating and oil). While the headline for crude was bullish, the numbers for gas was bearish. Analysts believe that the gas markets numbers continue to show ‘lackluster demand and will put pressure on the entire energy complex in the days to come’. The EIA revealed a larger than expected increase in natural-gas stockpiles to +78 bcf vs. +60 bcf’s. We continue to remain range bound with the price action as the market is looking for stronger evidence to tackle the technical support and resistance levels.

A number of factors are supporting the ‘yellow metal’s’ largest rally in over a month. Gold is rallying on the heels of positive sentiment expressed by a rally in the equity market, a weaker dollar and finally a Portuguese 2-notch downgrade by Moody’s. Strength in commodities has a positively strong correlation with equities. Pick your poison, as every excuse is legitimate to wanting this commodity to be a part of ones portfolio. Technically, the bullish sentiment had been on hiatus with profit taking testing the medium term support levels. Fundamentally, in the short term the metal will find it difficult to rally aggressively, as historically, this is the ‘slowest’ season for physical demand. Despite this, longer term view, market concerns over global economic growth is supporting the ‘yellow’ metal prices on pull backs. Year-to-date, the commodity has gained +12.5% as investors have been content in using the commodity as a hedge against any European holdings ($1,213 +40c).

The Nikkei closed at 9,795 up +258. The DAX index in Europe was at 6,207 up +16; the FTSE (UK) currently is 5,272 up +1. The early call for the open of key US indices is higher. The US 10-year backed up 7bp yesterday (3.12%) and are little changed in the O/N session. Treasuries extended their losses to a fifth day as the market prepares to take down the last of the $69b’s worth of new product this week (3’s $35b, 10’s $22b and Bonds $12b) and on the back of a global bourse rally, reducing the demand for the safe heaven asset class. Throw in a revised IMF forecast for global growth, warrants dealers to cheapen up the curve and push 10-year yields to threaten the 3.15% resistance level. Yesterday, the 10-year note sale came in at a yield of 3.119%. The bid-to-cover ratio was 3.09, compared with the average of 3.06 over the past 8-auctions. Overall, the auction generated a healthy demand for the benchmark. The indirect bid (proxy for foreign buyers) was 42% compared to an 8-auction average of 38.3%. The direct bid (non-primary dealers) was 10% vs. an average of 15.5%. Current market sentiment has dealers wanting to sell product on up-ticks.

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Portugal Downgrade!

« US Earnings On Tap! | Home

By Mike Conlon | July 13, 2010

In the European session, Moody’s ratings agency downgraded Portugal two notches to A1 but maintained a “stable” outlook while citing weak growth prospects.  ECB President Trichet maintained that monetary policy is appropriate in an attempt to assuage the market.  Meanwhile, investor confidence figures in Germany weakened, as did wholesale prices.

In the UK, higher than expected CPI figures showed that inflation may not be subsiding as the BOE had expected which halted the Pound’s 3-day decline as expectations for normalized monetary policy have picked up for the second half of 2010.  In addition, home prices expanded to the highest reading since 2007, adding further support for the normalized monetary policy view.

Earnings season in US kicked off yesterday after the bell and generally speaking have been viewed as positive.  Stock index futures are higher in the pre-market, so we are seeing some Dollar weakness generally in line with risk-taking.

In the forex market:

Aussie (AUD):  Overnight, Australian business was unchanged as businesses reported improving sentiment.  However, there is some pressure on the Aussie as concerns over a slowing Chinese economy have increased.

Kiwi (NZD):  The Kiwi is rebounding from earlier lows due to Chinese slowdown concerns as the market is anticipating higher CPI data later this week.

Loonie (CAD):   The Loonie is higher this morning as both US corporate earnings and commodities are higher.  The Loonie will be in focus this week as Canada stands to benefit from good earnings in the US more so than the Aussie and Kiwi as the US is the largest importer of Canadian goods and services.

Euro (EUR):   The Euro is lower this morning on the Portuguese debt downgrade, though Greece had a successful bond auction which has pared losses.  Both German and Euro zone economic sentiment figures came in less than expected, showing a deteriorating outlook for the economy.   Wholesale prices in Germany were also lower, with the index showing a decline of .2% for the month vs. an expectation of a .2% rise, also taking the year-over-year figure down to 5.1% from an expectation of 5.5%.

Pound (GBP):   The UK reported CPI data showing a 3.2% gain, less than the BOE was hoping and still above its target limit of 3%.  The BOE has a dual mandate to keep inflation in check and encourage employment, so it may have its hands full trying to balance economic growth and taming inflation.  Nevertheless, the market sees this as reason to support the view that the BOE may return to normalized monetary policy in the second half of 2010.  In addition, house prices rose 11% to the highest levels in almost 3 years.

Dollar (USD):   The Dollar I slower this morning as corporate earnings season has started and the initial reports are positive for the economy.  Stock futures and commodities are higher in the pre-market, and the inverse correlation of the Dollar to the equity markets appears to be intact this morning and risk appetite is increasing.

Yen (JPY):  The Yen started the morning higher but is giving back gains as the US market becomes the focal point of the trading day.  Risk due to the debt downgrade in Portugal had provided the Yen with a bid, but that appears to be reversing.  This took the Nikkei lower, despite the fact that Japanese consumer confidence advance for the sixth straight month.

The two major themes in the world market right now are US corporate earnings and the continued EU debt crisis.  While US earnings have started out on a positive note, the downgrade of Portuguese debt has counter-acted the positive sentiment.

It is important to note that certain news carries more weight in different market sessions.  For example, the earnings news was initially viewed as positive in the overnight session….until the debt downgrade reversed sentiment in the European session.  Now that the US session is about to begin, the market has returned its focus to the positive news in the US.

This is a familiar pattern that we see time and time again.  Since the majority of the risk in the marketplace stems from the Euro session, there will be times when seemingly good news can be derailed by bad news only to be outweighed by the good news again as the US session begins.

This can provide traders with numerous opportunities to get into positions based on the opening of the US session!  For those who prefer to hold trades overnight, you really need to be careful with stop placement as the potential for swings from risk taking to risk aversion are increased as each trading session opens.

So today will be interesting to see which news today is more favored by the market.  My guess is the good news wins!

If you are not familiar with the different trading sessions and how they affect the forex market, be sure to check out our currency trading courses!

To follow these events live with a free, real-time practice account, click here!  Don’t miss out on the world’s fastest growing market!

Tags: account, AUD, Aussie, Australia, BOE, cad, canada, carr, commodities, course, crisis, currenc, currency, currency trading, data, dollar, dow, ECB, economic, economy, EUR, Euro, Europe, forex, forex market, free, fx, fxedu, gbp, home, Il, index, interest, invest, investor, Japan, jpy, Kiwi, live, loonie, lower, market, Mike Conlon, news, nzd, pound, practice, practice account, rate, RSI, sentiment, ssi, stock, time, trade, trader, trades, Trichet, USD, Yen

Topics: What To Look At In The Market |


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Japanese Yen and the Irony of Debt

Since my last update in June, the Japanese Yen has continued to creep up. It has risen a solid 5% in the year-to-date against the Dollar, 12% against the Pound, and an earth-shattering 20% against the Euro. It is closing in on a 15-year high of 85 Yen/Dollar, and beyond that, the all-time high of 79. According to the Chicago Mercantile Exchange, “Long positions in the yen stand at $5.4bn. This is the highest level since December 2009 and represents the biggest bet against the dollar versus any currency in the market.”

usd-jpy 1 year chart
As to what’s propelling the Yen higher, there is very little mystery. Two words: Safe Haven. “The yen’s attractions lie in its status as a haven from the turmoil that has engulfed financial markets as, first, the eurozone debt crisis unfolded and, then, fears about a double-dip recession have intensified.” To be sure, there are a handful of currencies that are arguably more secure and less risky than the Yen. The problem is that with the exception of the Dollar, none of them can compete with the Yen on the basis of liquidity. In addition, thanks to non-existent inflation in Japan and low interest rates in other countries, there is very little opportunity cost in simply holding Yen and simply taking a wait-and-see approach.

According to some analysts, interest rate differentials will probably remain narrow for the foreseeable future: “Global bond yields will fall, reducing the incentive of yen-based investors to place funds abroad.” In fact, thanks to low interest rate differentials, the Yen is not even the target funding currency for carry traders. Suffice it to say that investors are not bothered by the fact that Japanese monetary policy is extraordinarily accommodative and that Japanese long-term interest rates are the lowest in the world. For those who are concerned about rising interest rate differentials, consider that this probably won’t become a factor until the medium-term.

On the fundamental front, there are a couple of risks for the Yen. First of all, there is the stalled Japanese economic recovery and the possibility that the strong Yen could further erode the competitiveness of Japan’s export sector, the mainstay of its economy. Yen bulls respond to this by noting both that Japan’s economic recovery has already stalled for 25 years and that should the Yen’s rise actually crimp economic growth, the Central Bank would probably intervene. By all accounts, “The government will continue to keep a close eye on the yen.”

A greater concern, perhaps, is Japan’s massive debt. Near $10 Trillion, public debt is already 180% of GDP, and is projected to grow to 200% over the next few years. Total public and private debt, meanwhile, is by far the highest in the world, at 380% of GDP. The Japanese government is planning to implement “austerity measures,” but political stalemate and election pressures will make this difficult to achieve.  All three of the rating agencies have issued stern warnings, and downgrades could soon follow. Here, Yen bulls retort that as unsustainable as this debt might appear, the majority (90%) of it is financed domestically, through the massive pool of savings. The remaining 10% is eagerly soaked up by foreign investors, who view the debt as a more attractive alternative to cash and stocks. [This is the great irony that I alluded to in the title of this post - that more debt is viewed positively as "liquidity" and does nothing to hurt the Yen].

Japan Public Debt 1980 - 2010

Speaking of which, the Japanese stock market has risen by only 5% this year, and some analysts are predicting that a long bull market is inevitable. Adding to the fervor, Central Banks have begun to build their positions in the Yen, for the first time in 10 years. It seems everyone is excited about the Yen, even economists: “Within the developed economy space, Japan looks relatively good as an economy that’s likely to be growing faster than Europe or America, and it’s generally considered to have low risk of capital flight.” In other words, the consensus is that there is a very low chance of a “Greek-like debt crisis.”

At this point, the Yen can only be toppled by Central Banks: either foreign Central Banks will hike interest rates and make the Yen unattractive in contrast, or the Bank of Japan will intervene directly to prevent it from rising further.

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