Buckle Up, the Bank of Japan Has Blown Up the Markets (Again)
If you have been long US stocks since Election night, you have been a Yen bear and nothing else.
Last September the Bank of Japan announced a new policy of targeting a 0% yield on its 10-Year Japanese Government Bonds. Many in the investment community took this to represent a “tightening” of policy.
It was no such thing.
Targeting a 0% rate on 10-Year JGBs opens the door to unlimited currency devaluation as the Bank of Japan prints Yen to buy JGBs.
Note the collapse of the Yen that followed this announcement.
This policy was implemented strictly to devalue the Yen which had been appreciating rapidly due to the BoJ’s policy mistake of implementing NIRP earlier in 2016 (NIRP is highly deflationary as both the BoJ and ECB have discovered).
Since this time, the Yen has been the single largest driving force for the markets, as Gold and Bonds sold off and the $USD and US stocks rallied based on the BoJ’s interventions.
Yen Down=Bonds and Gold down.
Yen down= US stocks up.
If you were trading in any of these assets since September 2016, you were effectively trading the Yen and nothing else.
But this period has ended.
The $USD/Yen pair has taken out critical support. The Yen carry trade has begun to blow up. Yes we will have bounces here and there (like the one late last week) but this trend is OVER.
And stocks are about to play “catch up.”
On that note, we are already preparing our clients for a sharp correction. Market “rigs” such as this never end well.
We just pu
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Chief Market Strategist
Phoenix Capital Research