It was just a matter of time before the dreadful long-term fundamentals of the Japanese economy finally fed through to their currency. It appears that the much better-than-expected October US jobs data has at last done the deed.
The logic of the foreign exchange market is quite simple. A stronger-than-expected US economy means that there is less need for quantitative easing from the Federal Reserve, which is great news for the dollar. The fat got poured on the fire for the yen on Tuesday when the Bank of Japan announced another ¥11 trillion ($90 billion) worth of monetary easing. We are also getting confirmation of this from the Euro, which broke to a multi-month low today.
If you had any doubts about this analysis, look no further than the price of gold, which is getting the stuffing knocked out of it today — down $35. Gold without monetary stimulus is just a heavy yellow metal.
This is not just a one-day wonder. I think we are on the cusp of getting a whole raft of positive data points for the US economy (click here for My 2012-13 Stock Market Forecast at). You will see in my Monday letter that I am doubling the number of black swans from four to eight.
I am now getting distress calls in the middle of the night from friends in Japan. They tell me that the Ministry of Finance is calling emergency meetings with the major Japanese government bond syndicates over how to place more paper. It looks like the Mandarins in Tokyo may finally be hitting a wall on how many bonds they can force domestic institutions to buy.
If that is the case, the implications for the global financial system will be momentous. It is a disaster that has been 20 years in the making. Needless to say, this is terrible news for the Japanese yen. For more depth on why you should despise the Japanese yen, please click here for my October 23 piece, “The Fat Lady is Singing for the Japanese Yen”.
There is also a fascinating development unfolding on the charts. Look at the weekly chart below for the (FXY). Now that we have decisively broken through the 50-day moving average, we are clearly targeting the 200-day moving average at $116. I have structured the strikes on my in-the-money bear put spread accordingly.
If you are unable to do my recommended options trade to sell short the yen for any reason, you might look at buying the ProShares Ultra Short Yen ETF (YCS), a 200% leveraged fund that goes up when the Japanese currency goes down.