AUD/JPY is up 8.3%.
CAD/JPY is up 3.0%.
CHF/JPY is up 5.7%.
EUR/JPY is up 12.1%.
GBP/JPY is up 12.3%.
USD/JPY is up 9.2%.
The price basis I used was around the end of May of 2006. About that time, two significant things happened. First, the Federal Reserve came to a much talked about halt in their interest rate normalization. The other significant development was the beginning of the ECB's own course of interest rate moves that have taken their target rate from 2% to what is now 3.5%. During that timeframe, one other event has largely failed to materialize, that being the Bank of Japan bringing to market their own interest rate increasing policies. There has been one move that could be characterized as nothing more than a token countenance towards the market's growing anticipation of economic fundamentals moving favorable for Japan. Since then, nothing.
Looking at the charts for the yen vs. all the other currencies, it's hardly coincidental that the yen broke lower against its counterparts at that time. For the European currencies, it's been a huge move. The North American currencies have been a little more subtle in their moves, but are obviously still benefiting from the large differential.
I see two main reasons why Europe has seen more of an increase in the timeframes. First, North American central banks are largely holding in their interest rate moves. Canada looks fairly disinterested in moving interest rates, whereas the Federal Reserve has eluded that they are more likely to move rates higher as opposed to lower, a factor that the markets don't seem to be catching on to. As for Europe, interest rates look to move higher. How high is anyone's guess right now, but I'm leaning towards lower than the market expects in the long-run.
The second reason is the increased diversification of funds out of the dollar into Europe. The trade deficit between the U.S. and Japan has become exactly that, a deficit. If one country trades with another, and incurs a deficit, it's only a deficit if in the long-run the other country doesn't want the currency. Take China for example. They are very willing to hold on to their dollars they are acquiring from the U.S. That's not a deficit. The moment that China decides to diversify into another currency, a lot like what is happening with Japan and their reserve build-up of euros, then THAT is a deficit and the currency will weaken.
In all, for Japan, this is pretty much a wet dream come true. The yen should have been sitting at these levels long ago, if not lower. If you've got the ability to borrow money in Japan at .25% and can put it in a bank account in Australia or New Zealand earning about 6.50% interest, you'd do it all day long. In fact, that's exactly what is happening. All the while the yen moves lower and lower as money flows out of the country, and the exporters sit there counting the profits as the cash register keeps on ringing.
I've been taking advantage of one side of this trade for a few months now. But, I'm getting leery over it. What if on the 17th of this month, we see the BoJ move rates. Could we see a move a la 1997 when the yen moved 11 big figures in one day? The thought then was that the interest rate differential was unwinding. At some point, this one way bet that we have now is going to unwind and billions are going to move. The first out of the trade is the winner. It will be a race to be the first out. And that's when we'll see the very bottom of the yen's move and some pretty big moves.
Keep an eye on the next Central Bank to begin its interest rate moves. It could be the BoJ and it could have huge implications.