Currency Wars

Japanese Yen Index, $XJY, 1Y, daily

The G20 Finance Ministers meeting in Moscow last week ended with the proclamation that there would no currency wars. Historically when the G20 Finance ministers make public statements like this they are privately doing the opposite. These press releases are solely for public consumption, the ministers aren’t so much concerned about the decline in currency value as they are with market volatility. But the simple fact is The United States is the single largest currency manipulator on the planet, something I’ve pointed out in the past.

I’ve made lots of money by trading this position. But Japan seems to be getting lots of flack present, as the chart above shows the Japanese Yen Index ($XJY, black line) declining about 18% over the past year, and some traders are increasingly cautious about Yen exposure. So to me it seems the Americans are getting a tad annoyed that another G7 nation is manipulating their currency better than The United States can manipulate the dollar. Why is Japan doing this? To render their exports much cheaper; Toyota and Honda are selling record numbers of cars, particularly in North America, with shares of each reflecting robust business. This is all thanks to the Bank of Japan.

In the past when we’ve seem these currency wars they almost always end with a market event of some sort. There is a lot of big money piling up on the side of a US equity market correction over the next six months. March 1st is a critical date that many people seemed to have missed. The chart below shows the sharp decline in the value of the US dollar since the mid 1970s. Only moving in one direction.

2 comments to Currency Wars