The Yen and the Stock Market

The Yen Breaks Out
A few days ago we discussed the yen’s trend change and what appeared at the time to be an imminent breakout. This breakout has now actually occurred, and looks quite convincing to us.
If a pullback to the former resistance (now support) area highlighted below should occur, it should probably be bought. This may not happen, but given that Kuroda-san is probably not happy with this move, we expect him to act to counter it, which could induce a correction and retest.
At its recent lows, the real exchange rate of the yen in trade-weighted terms was close to levels last seen in 1973, so it is fair to say that the yen is currently quite undervalued relative to other fiat currencies. Moreover, the BoJ consistently fails to persuade Japanese banks to expand credit, which puts a damper on money supply growth in the non-financial parts of the economy.
Add to that the fact that the yen’s rally looks technically even more convincing now, and we have all the ingredients of what could eventually become a much bigger move than most observers currently expect.
A Subtle Stock Market Signal
As we have mentioned on Tuesday, a stronger yen usually doesn’t bode well for stocks. We once again should warn that such correlations are never valid ‘forever’. The only thing one can always expect to happen in financial markets and the economy is constant change.

This post was published at Acting-Man on April 9, 2016.