Wednesday, December 26, 2012

Warren Mosler — yen tailspin?

With Fukushima down, Japan needs to import more oil, putting pressure on the yen.

The Center of the Universe
yen tailspin?
Warren Mosler


mike norman said...

Meanwhile, I'm long the yen like an idiot. But I couldn't help betting against fools like Schiff, Axel Merk and Kyle Bass. They're all short the yen on fears of BoJ "money printing" and insolvency.

Anyway, here's what we know:

There was a lot of yen selling prior to the election. Open interest and short positions by speculators (including small specs, who are considered the dumb money) was at record levels.

Since the election the yen has sold off something like 500 basis points against the dollar, or about 6%. Taht's all been due to aggressive yen shorting.

The new government believes it is "out of money," so an outright fiscal expansion underpinned by printing yen, is out of the question.

Prime minister Abe has been pressuring the BoJ and the BoJ has responded by saying it will "buy more assets." Great...more QE, that is just an asset swap and does nothing to weaken the yen.

The new government is also very close to the corporate sector and it is believed that it will soon give the ok to restart the nuclear reactors, which have been shut down since the quake. If so, this will go far to reverse Japan's current trade deficit, which came about solely as a result of massive oil imports to meet energy needs.

The markets believe this to be true and imminent, as shares in Japanese power companies have been surging.

So...Japan and the BoJ are doing nothing to create net new yen financial assets. The nukes will be restarted soon and the dumb money is shorting the yen like crazy.

If that's not a prescription for a yen rally, I don't know what is.

Tom Hickey said...

Looks to me like a set up for a short squeeze and shake out of the dumb money.