All eyes will be on Japan today because there is now a huge amount of pressure on Bank of Japan (BOJ) governor Kuroda to come through with the goods after a lot of jawboning. A two day meeting will finish and the market wants to be given some lollies, otherwise there will be a lot of whinging and stomping of the feet.
The Japanese Yen has been belted 20% in the last eight months on the back of expectations that the BOJ will start printing madly again. Kuroda has landed the new job as BOJ governor on the promise of giving the market and Prime Minister Abe what he wants.
Investors have been borrowing in the Yen and investing offshore safe in the knowledge that the Yen will probably weaken further. If Kuroda meets stiff resistance to his plans or doesn’t go far enough you can expect to see a sharp rise in the Yen and a big fall in equity markets as carry trades are unwound.
I think some of the buying in the Yen over the last week has probably been cautious traders unwinding a few positions just in case the news is bad.
The way I like to look at situations is to ask where the risk lies, and I have to say that the risk is to the downside in equities and upside in the Yen with this announcement because it will be easy for Kuroda to disappoint the market but quite difficult for him to pleasantly surprise the market. Now we watch and wait.
Editor, Slipstream Trader
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