- Japanese yen speculators have been short the yen, without success, for all of 2014. Their collective position has been reduced but they are still short over 75K futures contracts.
- Safe haven buyers continue to regard the yen as a place to park money in times of geopolitical turmoil, but is this correct?
- Will a new Ministry of Finance appointee with intervention experience contain any yen rallies?
The downing of the Malaysian jet over the Ukraine last week resulted in safe haven seekers, causing the JPY to appreciate to 101.14. After the one day flurry, the yen then weakened to about 101.90. Quickly the conditioned reflex buying by the mob turned unprofitable.
There were some weaker numbers that helped the yen bears. The Japanese trade balance for the first half of 2014 was slightly better than anticipated -1.08T¥, but still bigger than the -0.86T¥ in the previous half. This is the largest six-month Japanese debt on record. Despite the weaker yen, exports have fallen short in part because so much of Japanese manufacturing production has been moved offshore. The trade balance also suffered because imported goods surged upward by 10%. Energy requirements to replace downed nuclear plants increased the import bill for oil and liquid natural gas.
Early next week we get numbers which will test the resilience of Japanese consumers. Remember, the national sales tax increased to 8% on April 1st from 5% previously, and consumers bunched their purchases ahead of the increase. Japanese Household Spending was down 8% in the last reporting period and is still expected to be down by 3.9% for June. A sharper recovery in spending would strengthen the yen.
Speculators have had difficulty trading the yen versus the USD this year. At the beginning of 2014, the USDJPY was trading above the 105 handle. Specs were convinced the yen would lose more to the USD. In preparation for the bear move specs were ready. According to the COT report at the beginning of 2014, they were short 175,326 contracts. These short positions were not profitable, but the surprising fact is, the large specs still cling to a sizable short position. The new COT report this afternoon shows the total spec short is 74, 972 contracts.
For the beleaguered yen seller, there may be some help underway. This week the Nikkei Asian Review announced:
TOKYO -- The Finance Ministry announced July 4 a reshuffle of its senior officials. Tatsuo Yamasaki, who was involved in a large yen-selling intervention, was named vice minister of finance for international affairs. Some market experts say Yamasaki's appointment shows the government intends to fight yen appreciation.
Yamasaki served as the director of the foreign exchange markets division, which is in charge of currency interventions, from 2002 through 2004. At that time, the yen appreciated because of the collapse of the information technology bubble and the Iraq War. The Japanese government conducted a large-scale currency intervention, at the initiative of Zembee Mizoguchi, then vice minister of finance for international affairs and the current governor of Shimane Prefecture. The Finance Ministry's intervention topped 35 trillion yen ($340 billion at the current rate).
It seems to me the USDJPY playing field has just been tilted in favor of the yen bear. The worse case is the guy with the deep pockets, the Ministry of Finance, is going to keep any yen rallies under control. A market that cannot go up, just might go down. A revisit to the 105 (USDJPY, FXY, UUP, UDN) high is possible, so we wish to use strength in the yen to be a seller.