‘Watch It Go’: The Yen And A ‘Quartet Of Grey Swans’

Admittedly, I ran out of creative ways to tell the same story about the yen months ago. As it turns out, I'm not alone. On Wednesday morning in Hong Kong, one anchor, musing fatalistically on-air, called it "a kite without a string." "Watch it go," she shrugged. The relentless slide found USDJPY eying 145 (figure below). The yen's down ~20% in 2022, surpassing 1979 for the largest drawdown ever. The currency's worst year on record is a function of policy divergence between the Bank of Japa

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6 thoughts on “‘Watch It Go’: The Yen And A ‘Quartet Of Grey Swans’

  1. Currency War would be refrain from the past. US exports are going to suffer.
    . “Maybe they represent a quartet of Grey Swans doing their own imitation of the four horsemen of the apocalypse.”
    Seems a little cut and paste for almost any situation I don’t quite understand. Somebody help me out here please.

  2. Demographics will be the key to understanding what the various global economies will look like in the next decade.
    If demographics create a natural headwind, developed economies will have no choice but to use immigration to turn the headwind into a tailwind.

  3. E-nester makes a good point about demographics. China would be wise to pay heed.

    Maybe the US as well if the GOP continues to stifle immigration. But I wonder if their resolve will falter when the supply of workers willing to work for minimum wages as home healthcare aides further dwindles.

    Who will take care of us in a few years?? Will the silver vote overwhelm the racist vote?

  4. As to the Yen “crisis”, sorry, but i don’t share the alarm. Japan has been and is the best real world example of MMT on the planet.

    Even without the BOJ in the market, Japan was something like 95% self-sufficient when it comes to bond sales. Now with MMT in all but name, the JGB market does not need foreign buyers.

    Why in heaven’s name should they jack up interest rates to appease offshore hedge funds?

    What they do need is to overcome the understandable worries about the safety of nuclear power plants post-Fukushma.

    1. Well, one issue is that the currency has overshot so much, and yields are so low relative to other DM bond markets, that the second the BoJ pivots (assuming they ever do), the snap back is going to be absolutely brutal assuming it was a real pivot and not some meaningless half measure. I’d venture that the knee-jerk response to an overnight YCC abandonment would be totally anomalous — measured in standard deviations (which would obviously be a misleading way to measure this), you might well see the biggest black swan in market history. That’s a good reason to avoid an overnight abandonment at all costs, but eventually the cost will be too high even for the BoJ. If they keep defending that cap, and US yields keep rising (or even stay the same) the yen has no floor. If commodity prices don’t fall, the ramifications of that for the trade balance could become totally untenable. And I’m just not sure Janet Yellen can help much. I could be wrong, but I don’t know that Treasury, acting in concert with Japan’s finance ministry, can offset Kuroda’s bond-buying if the market keeps pushing the issue on that YCC upper-limit. He’s committed to unlimited purchases. Unless Treasury and the MoF can come up with a plan for an unlimited offset, the market will doubt the effectiveness of any intervention. The sheer blatant absurdity of Yellen teaming up with Japan’s finance ministry to (effectively) go to war with Kuroda is too much for me to bear, even as it’s an undeniably hilarious prospect. I imagine markets would feel the same way.

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