New BOJ Governor Craters Yen

At long last, Japanese Prime Minister, Shinzo Abe, has appointed a new governor to the Bank of Japan, Haruhiko Kuroda.

The foreign currency markets responded immediately, taking the Japanese yen down to ?94.60, a new three year low. It also broke new ground in a range of currency crosses, including Euro/Yen, Ausie/Yen, and Kiwi/Yen. It even weakened against that other despised asset class, gold, plunging to ?152,500. No surprise there.

I have known the good Mr. Kuroda for years, back when he was the Ministry of Finance official responsible for monetary affairs. He has a keen wit and a decent sense of humor that is rare for a Japanese government bureaucrat.

Most recently, I have bumped into him at various international economic forums in his capacity as president of the Asian Development Bank. Our running inside joke is that I go there to obtain English lessons from him, his being so incredibly fluent. That?s what a Master?s in Philosophy from Oxford University will do for you.

Kuroda?s language talents could well come into heavy demand in the coming months and years. He will have to explain to other developed nations why Japan has no choice but to collapse their currency to rescue its economy, at their expense. I believe the yen could fall to as low as ?150 in the years to come. You start hitting international political resistance at ?100.

So it is likely to be a long and drawn out battle. Expect to see a lot of dire headlines from the US government owned auto industry, and their for-hire congressional representatives. I saw this entire movie play out during the early 1980?s with the predictable end result that Japanese language ability is now a great advantage when looking for a blue-collar job in Ohio, Tennessee, Indiana, and Kentucky.

Kuroda?s appointment is a clear signal to the rest of us that the Abe government will be as aggressive as humanly possible in their yen weakening efforts. For those of us who trade, it means selling the current Berlusconi inspired rally in the yen, which may prove to be ephemeral, and buying the dip in the leveraged short yen ETF (YCS). The starting gun has been fired, and the leg to ?96 has begun.

FXY 2-25-13

YCS 2-25-13


Time to Start Selling Yen Rallies Again