Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Japan and US at G7 – Agree to Disagree

Currencies / Japanese Yen May 23, 2016 - 04:09 AM GMT

By: Dan_Norcini

Currencies

The big Pow-Pow taking place in Japan with the G7 ( Group of Seven) finance ministers yielded what most of us already expected – no agreement whatsoever.

I found Japanese Finance Minister Taro Aso’s remarks quite revealing. His view is that the recent movements in the Yen have been “excessive”. “The movement seen over the past several weeks can’t be described as ‘orderly,” he noted.

He noted that “one-sided, speculative trades” have been behind some of the move higher in the Yen. The Japanese find such things undesirable.


In their view, intervention can therefore be justified.

He further added that Japan prefers to see changes in the Yen of a gradual nature.

The US side, led by Treasury Secretary Jack Lew, believes that the movement in the Yen have been orderly.

I can see no way out of this impasse as they are not even close to agreeing!

What the US side apparently does not grasp, and which we have mentioned repeatedly here at this site, is that a weaker Yen is the lynch pin in the entire Prime Minister Abe economic recovery plan. Abe campaigned on this issue and MUST PERFORM if he is to stay in office. Take away a weak Yen and the entirety of his strategy for revitalizing Japan’s economy comes crumbling down. What do you think will happen to his party ( Liberal Democratic Party) at the voting booth if he fails? He knows that, Finance Minister Aso knows that and most everyone in the Abe administration knows that. Apparently the US delegation does not.

Take a look at the following intermediate term chart of the Yen.

The Yen had erased the entirety of its 2015 decline by the last week of April this year. The currency has drifted lower in May but still remains elevated after basically reaching its former floor in 2014.

Abe was elected Prime Minister by the Japanese legislature in late December 2012 as his party, along with their coalition partner, held a wide majority. You can see what happened to the Yen immediately after his taking of office; it plummeted sharply in the first half of 2013.

My guess is that if the Japanese were to try intervention, knowing how risky it is because of the current view of the US that it is not warranted, they will probably wait until it pushed closer to the top of the congestion zone formed in the first half of 2014. That would be up to near the level of the “penny yen”. Their economy did pretty well in 2013 and the first half of 2014, so they can probably tolerate the Yen up near the “penny” level, but anything beyond that would be unacceptable to them.

If the Abe administration/Liberal Democratic Party has to pick between staying in office or angering the Americans, it will choose the former and deal with any backlash later. There is an old saying in life in general, “It is better to ask forgiveness than to ask for permission”. That would be the path they would undoubtedly choose if the Yen were to continue to strengthen.

Fortunately for them, the Fed sounded that hawkish note in their FOMC minutes which took some of the wind out of the Yen as the Dollar began moving up.

You can see the predicament these Central Bankers have gotten themselves into. If the Fed turns dovish, the Dollar drops and the Yen rallies. That in turn brings added political pressure on the Abe administration to intervene, especially if the profits of major Japanese corporations such as Honda, Toyota, etc, begin to suffer as a result of lost business due to Yen strength.

The flip side is that the US benefits because commodity prices move higher and inflation picks up ( at least at the wholesale level when it comes to commodity prices ) staving off the Fed’s dreaded DEFLATION enemy.

If the Fed turns too hawkish however, Japan’s problem is solved as their Yen starts dropping but as the US Dollar in turn moves higher, commodity prices start moving lower and with that, the short-circuiting of the Fed’s efforts to gin up inflation here in the US.

All of these Central Bankers are trying to accomplish the same thing at the same time – namely, get out of the deflation trap and generate an inflation rate of 2% – but in order to achieve it, they all need a weaker currency which works to push up prices domestically. The problem is that someone’s weaker currency is someone else’s stronger currency. Inflation in one zone leads to deflationary pressures in the other.

What a nightmare. I sure wish the alarm clock would ring and we would see this bad dream come to an end but sadly I don’t hear any bells going off at the moment.

Dan Norcini

http://traderdan.com

Dan Norcini is a professional off-the-floor commodities trader bringing more than 25 years experience in the markets to provide a trader's insight and commentary on the day's price action. His editorial contributions and supporting technical analysis charts cover a broad range of tradable entities including the precious metals and foreign exchange markets as well as the broader commodity world including the grain and livestock markets. He is a frequent contributor to both Reuters and Dow Jones as a market analyst for the livestock sector and can be on occasion be found as a source in the Wall Street Journal's commodities section. Trader Dan has also been a regular contributor in the past at Jim Sinclair's JS Mineset and King News World as well as may other Precious Metals oriented websites.

Copyright © 2016 Dan Norcini - All Rights Reserved

All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. The information on this site has been prepared without regard to any particular investor’s investment objectives, financial situation, and needs. Accordingly, investors should not act on any information on this site without obtaining specific advice from their financial advisor. Past performance is no guarantee of future results.

Dan Norcini Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules