Dramatic and indiscriminate liquidations in Japan equities, the world's recent favorite foreign-capital driven market is underway. Expect vicious downside and volatility in NDX and global DM indices.
Thanks for this update. Wouldn’t this rate hike cause a slowing of the Japanese economy and pressure JPY vs currencies of easing countries like the US again? Maybe in time it does? Or is JPY purely controlled by monetary policy?
So here’s the thing (and I go into depth on these very matters you’re very rightly focused on) - from what I’m observing on the ground here 🇯🇵, the nearly unanimous talk/sentiment is of this “rush rate hike = not helpful / bad for economy at this moment with weak consumer spending etc” - almost everyone is saying this, except for a suddenly hawkish BOJ/Ueda. The biggest concern is on rising mortgage rates, let alone at a time when real wages are still negative. Ueda says that those loans are reset in 5 year terms, so it would only impact those who take out a mortgage now and forward, and in that 5 year window, real wages will go strongly positive, according to their “projections” - and so it’s not an issue (i.e. policy mix will succeed to overcome any potential policy headwinds - he says.)
Here’s the honest reality that nobody is entertaining - nobody knows what a lift off zero will or won’t do for Japan economy, period. I can make compelling sounding arguments for both sides, but it’s all nonsense - we plain and simple do not know just how addicted to free money Japan’s economy is until in real time. Obviously BOJ/policy makers can’t and won’t say that, and I don’t want them to, but for the rest of us, we have no idea what we’re talking about.
As you say- all that stuff will reveal with time (and not starting far far out in the future either).
But in the meantime in green and red blinking ticker world- JPY is purely a function of levered positioning, trade exits and new openings (much more of the former). We may very well see USDJPY at 180+ by year end, but also see a sub 140 print on the pathway there. That kind of extreme erratic price action would be far more likely than a smooth and orderly JPY rally, and/or new multi decade lows
Very simply, did the BoJ break The World today via the massive HF yen carry trade unwind?
Thank you Wes, your message allowed me get in front of this move.
Hope you cashed in bigly today.
Thx, was wondering NKY WTF and of course Weston knows. Very thoughtful note
Thanks for this update. Wouldn’t this rate hike cause a slowing of the Japanese economy and pressure JPY vs currencies of easing countries like the US again? Maybe in time it does? Or is JPY purely controlled by monetary policy?
So here’s the thing (and I go into depth on these very matters you’re very rightly focused on) - from what I’m observing on the ground here 🇯🇵, the nearly unanimous talk/sentiment is of this “rush rate hike = not helpful / bad for economy at this moment with weak consumer spending etc” - almost everyone is saying this, except for a suddenly hawkish BOJ/Ueda. The biggest concern is on rising mortgage rates, let alone at a time when real wages are still negative. Ueda says that those loans are reset in 5 year terms, so it would only impact those who take out a mortgage now and forward, and in that 5 year window, real wages will go strongly positive, according to their “projections” - and so it’s not an issue (i.e. policy mix will succeed to overcome any potential policy headwinds - he says.)
Here’s the honest reality that nobody is entertaining - nobody knows what a lift off zero will or won’t do for Japan economy, period. I can make compelling sounding arguments for both sides, but it’s all nonsense - we plain and simple do not know just how addicted to free money Japan’s economy is until in real time. Obviously BOJ/policy makers can’t and won’t say that, and I don’t want them to, but for the rest of us, we have no idea what we’re talking about.
As you say- all that stuff will reveal with time (and not starting far far out in the future either).
But in the meantime in green and red blinking ticker world- JPY is purely a function of levered positioning, trade exits and new openings (much more of the former). We may very well see USDJPY at 180+ by year end, but also see a sub 140 print on the pathway there. That kind of extreme erratic price action would be far more likely than a smooth and orderly JPY rally, and/or new multi decade lows