I just returned from a few months in Japan. The Japanese I know are seriously upset that they can't afford new apartments or high end restaurants. And a lot of the younger generation seem to be giving up. I love Japan but this doesn't bode well for social stability.
Well, given that the 10-year finally broke 1.0% today, it seems you are on your way. Very interesting thesis. I agree, there is not much reason for the yen to strengthen
Japan pretends that they care about the currency depreciation. Actually they do not care because exports, tourism etc are doing better. A typical Honne Tatemae approach.
What part of the JPY curve do you think is the better short?
Listening to BOJ presser last Friday just reminded me how slow they will be. In any case, looking at the hikes of BOJ in the past, they've managed to turn over the US rates markets. The Saudi Arabia of savings it is.
Other interesting point is that while in the past there were TBT etf equivalents to allow retail to short JGBs they all appear long gone (or JPY long swaption etfs for that matter) which shows how far shorting JGBs has fallen out of any market contemplation.
According to Richard Werner (pdf. posted here: https://t.me/stoneweapon/1435), the yen currency collapse could accelerate to Y174/$ or even Y239/$. The political force behind yen depreciation/liquidity is a geopolitical phenomena driven by the privately owned FED and privately owned interest in the BOJ. The MOF in Japan is at odds with the BOJ, and the interventions ordered from the MOF are obviously futile in the longer run.
What is the geopolitical strategy? I suspect the yen is being weaponized against Europe, specifically Germany and by extension industry in the EU that cannot compete with Japanese exports; at least as a first order effect that pushes German companies to reshore its industry in US, Canada, Mexico et al. I think of it as a US reindustrialization strategy that also comes with subsidies via IRA, https://www.dw.com/en/is-german-industry-migrating-to-the-us/a-65031130 and lower energy costs post Nord Stream.
Schluter for example recently relocated to Hamilton, ON with $1B revenue in NA distribution and now they are saving approx. $1M per month in manufacturing costs.
Seeing increasing stuff on social media about (mainly young) Westerners buying abandoned or run down houses in Japan. For an Australian the prices look extraordinarily low if you think in AUD terms and compare to apartments here. They aren't so cheap if you are earning 1100 Y/hour.
I just returned from a few months in Japan. The Japanese I know are seriously upset that they can't afford new apartments or high end restaurants. And a lot of the younger generation seem to be giving up. I love Japan but this doesn't bode well for social stability.
Well, given that the 10-year finally broke 1.0% today, it seems you are on your way. Very interesting thesis. I agree, there is not much reason for the yen to strengthen
Short JGBs is the concubine creator trade.
I struggle to understand the distribution of cash to young Japanese people to support the boom / increased consumer services spending.
This certainly has me thinking 🤔
The follow up question is how does this negatively affect other Asian trading partners? Korea and China in particular.
what do you mean by : Short JGBs is the concubine creator trade. ?
As opposed to the historic widow-maker trade it was called.
¥3600 or lower quality / smaller portions.
Payer spreads or conditional YC trades I’d say is best.
I agree that Ramen is on its way to ¥3600.
Japan pretends that they care about the currency depreciation. Actually they do not care because exports, tourism etc are doing better. A typical Honne Tatemae approach.
What part of the JPY curve do you think is the better short?
I always short long end - otherwise what's the point
3600 yen just sounds so wrong!
https://asia.nikkei.com/Business/Travel-Leisure/Japan-restaurants-explore-charging-foreign-tourists-more
Maybe only visitors will have to pay 3600 jpy.
Or.the BOJ could raise rates....
Listening to BOJ presser last Friday just reminded me how slow they will be. In any case, looking at the hikes of BOJ in the past, they've managed to turn over the US rates markets. The Saudi Arabia of savings it is.
https://www.tradingview.com/x/9uuICSNe/
Big change for BOJ and Japan is that Korean and Chinese wages have caught up.to.Japan... Japanese wages are too low - so inflation more likely
Other interesting point is that while in the past there were TBT etf equivalents to allow retail to short JGBs they all appear long gone (or JPY long swaption etfs for that matter) which shows how far shorting JGBs has fallen out of any market contemplation.
I know the physical JGB market is very tightly controlled...
Japan and China have swapped places
In the long arc of history, this is of course but a temporary phenomena
30 years ago, China was relatively poor, and heavily dependent on foreign capital
The RMB was kept weak, foreign investors welcomed with few reservations
Chinese borders were, at least for G7 nationals, essentially completely open
Japan was rich, isolated, and somewhat arrogant
The JPY was impossibly strong, and looked to only get stronger
Today's situation is the exact opposite of the former
To me, Chinese equities look to be a lost decade, if not longer
Similarly, despite a weak yen, the TOPIX might generate enormous returns yet
Excellent synopsis. Could be a real winner in shorting yen and JGBs
According to Richard Werner (pdf. posted here: https://t.me/stoneweapon/1435), the yen currency collapse could accelerate to Y174/$ or even Y239/$. The political force behind yen depreciation/liquidity is a geopolitical phenomena driven by the privately owned FED and privately owned interest in the BOJ. The MOF in Japan is at odds with the BOJ, and the interventions ordered from the MOF are obviously futile in the longer run.
What is the geopolitical strategy? I suspect the yen is being weaponized against Europe, specifically Germany and by extension industry in the EU that cannot compete with Japanese exports; at least as a first order effect that pushes German companies to reshore its industry in US, Canada, Mexico et al. I think of it as a US reindustrialization strategy that also comes with subsidies via IRA, https://www.dw.com/en/is-german-industry-migrating-to-the-us/a-65031130 and lower energy costs post Nord Stream.
Schluter for example recently relocated to Hamilton, ON with $1B revenue in NA distribution and now they are saving approx. $1M per month in manufacturing costs.
Seeing increasing stuff on social media about (mainly young) Westerners buying abandoned or run down houses in Japan. For an Australian the prices look extraordinarily low if you think in AUD terms and compare to apartments here. They aren't so cheap if you are earning 1100 Y/hour.
Is Japan cheap? In a free-trade world, maybe. In a world with walls, maybe not.
Is Mexico expensive? In a free-trade world, maybe. In a world with walls...
That is what Mr Market is saying... and aligns with the shift in political winds.
Short JGBs - kiss of life or the re-animator (80’s horror homage) trade
Thanks for sharing, very interesting
Updated this long term graph series now with slightly higher US unemployment, 2nd BOJ hike and lower US 2y:
https://www.tradingview.com/x/NaxAtenn/
BOJ starts to hike soon after the last FED hike.
A predictor of a global recession coming?