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Steven Salz
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  • Short The Yen Ahead Of Tomorrow's BOJ Elections 0 comments
    Mar 13, 2013 10:46 AM

    Tomorrow the official vote will take place for Governor of the BOJ and Deputy Governors of the BOJ. Japanese PM Shinzo Abe's nominations are Haruhiko Kuroda and Kikuo Iwata + Hiroshi Nakaso respectively. Shinzo Abe has been pushing a manifestly pro-inflationary stance on Japan's economy since the election and used it as platform to catapult himself into the winner seat. His three nominees are of the same mindset, and given Shinzo Abe's incredible popularity among the Japanese (the highest in two decades), it is likely his three nominees will be elected and their economic measures welcomed. Shinzo Abe controls the lower house; however, he does not hold a majority in the upper. Unless something politically catastrophic happens within the next 24hrs, it is unlikely the upper house will prevent the election of Kuroda, Iwata, and Nakaso. The three will further accelerate Shinzo Abe's aggressive agenda on monetary and fiscal policy, ramping up the money printing machines and effectively ensuring the further de-valuation of the Yen. Newswires in the past 24hrs continue to express that all three nominees will likely be elected. Nakaso is viewed as a man of the 'old guard,' unlikely to be so outspoken on aggressive monetary policy, however, he has made recent bearish comments which are obviously coming as a surprise to some observers. I feel this only re-assures the trade.

    Technically: The USD/JPY is at a near breakout point ahead of the election, although further upside would exist if you didn't get into the trade right now, I believe today presents the best opportunity to get in at a good point of consolidation following its recent run up. The USD/JPY still remains above its previous ceiling with it likely now acting as a new floor. RSI, MACD look solid. (chart 1). Short the Yen.

    JPY/USD futures - note the clear downtrend in futures prices -

    http://www.cmegroup.com/trading/fx/g10/japanese-yen.html

    (click to enlarge)

    Long gold in Yen terms is another trade that flows logically with this. As the currency rapidly de-values gold will become a safe-haven asset and a preferred 'currency.' At home gold is moving out of favor; however, in Yen terms it is only increasing in value (chart 2). If gold becomes attractive at home again it will not de-value it in Yen terms. The trade remains secure despite possible future volatility and demand for gold in times ahead in the U.S. (see chart 3 for an overlay of the USD/JPY, GOLD/JPY (yellow), and GOLD/USD (green))

    (click to enlarge)

    (click to enlarge)

    Steven

    Themes: USD, JPY, USDJPY, JPYUSD, FX, XAU, XAUJPY, XAUUSD
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