We've been bullish on the yen (NYSEARCA:FXY) pointing out that the BOJ is out of ammunition. A main driver of their policy was to weaken the yen. A weaker yen makes imports more expensive which is good for inflation. It makes their exports cheaper which is good for their economy. It was a nice thought but it's turned on them. And now, Mr. Yen, who's correctly predicted the yen confirms the BOJ is out of bullets and the yen is about to strengthen further. What more do you need to know?
Former Vice Finance Minister of Japan Eisuke Sakakibara has been an axe on the yen. No wonder he's lovingly known as Mr. Yen. Early this year he called the yen to reach 100. He was right.
Here's his update.
"The yen would probably have a slow appreciation, so that I would not be surprised to see the dollar at 90 yen at the end of next year. At the very least, monetary easing is getting exhausted. They've been doing it for a long time. The effect is getting weaker and weaker."
Ah, music to our ears.
Out of Bullets
The recent BOJ action was a quiet admission that the BOJ has been unable to buy the bonds they need to buy.
Their "yield curve target" shows the BOJ admits that there are no sellers. How does the "yield curve target" say that? Because the BOJ now promises that if anybody wants to sell they'll buy. They didn't find the buyers but if they show up, the BOJ has a sign outside ready to buy.
Their previous policy was to actually buy a large amount of bonds. This new policy is a stepback to buy bonds but only those that institutions want to sell. That's a novel concept isn't it? They are ready to buy bonds that institutions are ready to sell. That is as opposed to their previous "shake-down" policy that proved unsuccessful. They could not find bonds to buy which held them back from buying bonds. Sounds like a simple problem.
That shows the BOJ has come to the reality that nobody wanted to sell their bonds to them.
The BOJ is very generous now too. Anybody who wants to sell at 0% yield, they'll buy. So you are guaranteed if you buy a 10-year Japanese Government Bond not to lose. You may not win at 0% but you won't lose unless Japan changes their plans.
Out Of Bullets And Mr. Yen Confirming: What It Means to Yen
Not only is the BOJ out of bullets, not only does that mean the BOJ doesn't have the buying outlet to print new bills, but also has now been confirmed by Mr. Yen himself that yen will be going higher.
What more do you need?
Source: Interactive Brokers
We've shown this chart before. You have a key level at 100. Going down in this chart shows yen strength (How many yen does it take to buy $1. A down chart means stronger yen. You require less yen to buy that $1.).
You've seen break-downs and break-outs at this level going back several years. We've been expecting it to break that level. Mr. Yen agrees. Need we say more?
Mr. Yen said 90 or 95 yen is not an economic calamity for Japan. He did say that if it were to hit 80, Japanese officials are going to start sweating. He didn't actually say sweating (we said that). He said, "If it breaks 90 and hits 80, then I would start to consult with the US for joint intervention."
That means "sweating."
And we expect it to reach 80. Why? Because of the famous theorem that the market tends to disturb the most people most of the time. For that reason, we expect the BOJ to start sweating at some point.
Yen has been threatening long enough at this 100 mark. Go ahead and break it already. You have our permission and now you even have Mr. Yen's permission. What more do you need?
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