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Sayonara Japanese Stocks

|Includes: CAJ, SNE, Toyota Motor Corporation (TM)

Most of the leading Japanese ADR's (American Depository Receipts) have been coming under some severe selling pressure since the start of the 2014. What is the cause of the decline in the leading Japanese stocks since the Bank of Japan is printing more money than the Federal Reserve (central bank of the United States)? The reason the leading Japanese stocks are falling is because the Japanese Yen has strengthened despite all of the efforts by the Bank of Japan to try and dilute the currency. Traders and investors can easily look at a chart of the USD/JPY (U.S. Dollar vs Japanese Yen) and see how the currency pair has been making lower highs on the chart. This tells us that the Japanese Yen is strengthening and that is a huge negative for the leading Japanese stocks. You see, exports increase when a currency is kept artificially low. Unfortunately for Japan, the easy money policies worked very well in 2013, but they are not working in 2014 so far.

Some leading Japanese stocks that are highly affected by the stronger Japanese yen includes Toyota Motor Corporation (NYSE:TM), Honda Motor Co., Ltd. (NYSE:HMC), Sony Corporation (NYSE:SNE), and Canon Inc. (NYSE:CAJ). Believe it or not, it is not just the Japanese stocks that decline when the Japanese Yen strengthens, the U.S. stocks market indexes will also fall on the back of a stronger Japanese currency. This happens because the countless financial institutions are betting on a weak Japanese Yen, so when the Japanese Yen strengthens it actually removes liquidity from the financial system. Just look at the stock market when the USD/JPY chart declines, the major stock market indexes follow that currency pair very closely, sometimes tick for tick.

Nicholas Santiago