Despite this mornings gains by the dollar on the yen past the 91 handle, there might be some more in the future. Previously when the equities retreated the yen would firm, as junior reporters would proclaim the strength was the result of investor fear. As the depth of the recent recession slips further into the past, concerns for safe havens erode, and investors jump aboard, more fearful they will miss the next bull run.
After two days of solid gains for US equities, they are taking a breather today, and are currently down about 40 on the Dow. Additional planned lay offs by US firms is cited as the reason for the weakness. With US new unemployment claims due out tomorrow, and the unemployment rate and non-farm payroll report both due on Friday, volatility should remain with us for the balance of the week. If the reports indicate the US is recovering, we can expect further dollar strength. The only Japanese report of note for the balance of the week is leading indicators, due Friday, and expected to come in at 93.7, better than the previous period of 90.7%.
Back in the 1950's Charles Wilson, Secretary of Defense and former President of General Motors said "what is good for General Motors is good for the country." Wilson was scorned for such a callous statement, left public office in 1957, and died a few years later. Toyota officials, perhaps mindful of the Wilson experience are apologizing profusely for the recent recall. Millions of cars are involved, but how many actually experienced accelerator malfunction? Ron Gettelfinger, UAW President and custodian for the union, along with the US government are the major owners of General Motors, and beneficiaries of Toyota difficulties. Mindful, no doubt, of the stake the US Gov. has in Toyota's recall, it was reported in Market Watch that US Transportation Secretary Ray LaHood advised owners leave the millions of Toyota's, involved in the recall sitting in the driveway. With General Motors sales boosted by the Japanese car makers problems, is it possible that what is bad for Toyota bad for the yen? Also does US government ownership rig the playing field in favor of Chrysler and General Motors?
In a Japanese business publication today Reuters said: "Although Japan's export-driven economy is back on track, largely due to rising demand from Asia, the United Nations said its recovery was slower than other countries, and predicted only 0.9 percent growth in 2010 compared to 8.8 percent for China and 2.1 percent for the United States." The new Minister of Finance in Japan has urged the Bank of Japan to expand the money supply, and keep rates low to ward off deflation. Keeping rates low also helps the Government with lower rates to finance the huge government debt. A lower yen also helps the Japanese exporters and seems to be favored by the Finance Minister. With the big guys on the bear side of the yen, we see no reason to fade them.
We remain long the USD and short the yen from last week at an average of under 90. With a little good news on the US side a run up to the 93/94 level is our goal.
Disclosure: no positions