Smart Investing – In Times of Crisis, JPY Thrives and Stocks Crash

Smart Investing – In Times of Crisis, JPY Thrives and Stocks Crash

In Times of Crisis – JPY Thrives

Incredible but true, it is with almost 100 percent certainty that any new crisis or sudden bad news in global markets will force a sharp yen appreciation. This was true for the Brexit shock, the recent trade war fears, North Korean missile tests, Japanese earthquakes — you cannot find a global shock that did not result in an immediate surge in the yen. There is no other asset class in the world that offers as much predictability, which is why the yen is loved by speculators around the world.

Why? Well because almost two-thirds of Japanese companies’ profits come from exports or global sales (through offshore production). So when the yen gets stronger, those overseas earnings translate into less yen.

In simpler terms – Corporate Japan’s profits take a big hit when the yen goes up; a ¥1 appreciation cuts profits by almost a full percentage point. This is where the vicious cycle starts that leads from yen appreciation to recession. Lower profits quickly translate into lower bonus payments for Japanese employees, which depresses consumer spending.

In addition, lower profitability for large exporters quickly forces them to demand price cuts from local suppliers and merchandisers. In Japan, the link between large multinationals and local small and medium-size companies is very close. A negative and deflationary feedback loop is quickly started if the yen’s appreciation is sustained.

The negative impact of yen appreciation on corporate profitability is why there is such a strong negative correlation between Japanese stocks and the currency. Almost 90 percent of the time, the yen’s appreciation forces Tokyo stocks to drop. Again, investors and speculators love this sort of high probability and steadfast causality. Yes, it is good investment advise: On any signs of global troubles, go long on the yen and short-sell Japanese stocks.


Technical Analysis



Rex Takasugi – TD Profile

FOREX JPY= closed up 0.080 at 106.990. Volume was 73% below average (consolidating) and Bollinger Bands were 18% narrower than normal.

Open        High         Low          Close        Volume
106.910    107.060   106.780   106.990   29,739

Technical Outlook
Short Term: Overbought
Intermediate Term: Bullish
Long Term: Bearish

Moving Averages: 10-period  50-period   200-period
Close:                     106.54        106.98        110.60
Volatility:            11                 9                   9
Volume:                107,380      121,023      106,274

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary FOREX JPY= is currently 3.3% below its 200-period moving average and is in an upward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of JPY= at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on JPY= and have had this outlook for the last 6 periods.

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Ivy Heffernan

Ivy Heffernan, student of Economics at Buckingham University. Junior Analyst at HeffX and experienced marketing director.

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