Why the Yen will continue crashing, and what will make it stop.
Pushing the limits of fiscal stimulus, sovereign debt and Keynesianism
The Yen will probably continue to drop but there are certain forces that could cause it to reverse abruptly — but first, some context…
I’ve been nailing Japanese-related macro largely as a result of my deep dive (and ongoing infatuation!) ~10 years ago.
When Former Japanese PM Shinzo Abe was assassinated 2 years ago, I published my 2015-2016 research on Abenomics 👇
The Spell of Abe
Shinzo Abe, the Japanese PM up until 2020, was assassinated on July 8th by a lone gunman. I attach a presentation I produced in 2015 on Abe’s policies to revive Japan. Philoinvestor is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.
It’s only ~30 slides and I suggest you have a look for historical context.
I was naive to think Abenomics would be abandoned when it failed — but that’s markets — if you are a student you always learn more with time. Nothing beats experience.
Having said that, must I state that Abenomics FAILED MASSIVELY or did you get that already right? Got it? OK, let’s proceed.
WHAT HAPPENED SINCE
I have been very vocal about my views on Japan and wrote threads explaining the setup and how I believed one should play it. A few examples of tweets and content from the past.
April 2022
Link to the tweet.
September 2022
I wrote The Central Bank of Harakiri. THREAD.
In this thread I started to explain how the coming wave of RATE HIKES from other Central Banks was Kryptonite for Japan— and gave my clear expectations on what I thought would happen in Japanese markets as a consequence.
December 2022 - the Peg breaks! 🚀🦉
By mid-December the peg had broken and markets moved exactly as I expected, but that was only the initial reaction to the break of the peg.
In this tweet I doubled down on expecting more Yen weakness going forward.
By late-December I wrote another thread on the setup. I expanded on how I expected the market moves that played out, but explained the reasons why I was still fading the Yen and Japanese macro… 🥲🫡
October 2023 - I close my short
By late 2023 the Yen had dropped back to late 2022 levels and I closed my short for reasons I explained in this Substack chat here. I nailed the trade as the Yen subsequently rallied 10 Yen vis-à-vis the Dollar!
December 2023 - the Yen peaks again
The Yen stages s a breather rally because lowering US CPI and lowering US treasury yields helped it move up. I warned against falling for this trap here: Tweet.
March 2024 - more thoughts on the setup
I tweeted out some more thoughts on the setup here, but I think very few get it, here’s the link to the tweet.
April 2024 - Yen breaks out
In Breakout Issue #3 I called the breakout pattern on the Yen as a strong indicator for where things were headed.
In late May the Japanese carried out another intervention spending $62bln in the open markets buying back Yen….. LOL! 👇
Now let’s dig in and see where this is going — and what the wildcards are…