Japan’s Currency War 5/12/13

One of my classmates from IIT was remarking about the high interest rates offered to Indians by their banks. I believe they get between 9 – 10% interest on their savings in Rupees. Question raised was can an ex-pat take his US dollars and convert to Indian currency to make more money than the rate of devaluation the Rupee sees over time against the US dollar? Needless to say, nothing is as simple as it looks, but it made me notice the quiet currency wars that are taking place.

You would hardly notice it on the streets; but there is a raging war going on. It has to do with currency manipulation to increase the health of countries. If China were to do it any further than what they already do, we would all take notice. But when it happens to our closest friend, Japan, we stay quiet and say nothing. Maybe even tacitly agree to the plan in some 5 nation summit. Agree quietly that helping one of the largest economies spur growth is good for the global economy.

What am I talking about? The controlled fall of the Japanese Yen. If you look at my chart on FXY you will see that it has dropped from its exit signal at $124.55 to $96.42 yesterday. That is a 22.5% drop in 7 months!! And don’t tell me that the chart looks like market random behavior! In fact it looks almost like Enron did at one time… Seems like Japan has taken a chapter out of Bernanke’s book.

So when are Japanese goods going to become cheaper and flood our markets? Too bad that the Japanese auto makers have all set up plants to manufacture cars in the US with US wages. Still, all the Japanese imported parts will be cheaper compared to local ones in the US. Japan is a country that thrives on exports. One exception will be its energy imports which just got a lot costlier. Free market we call all this… Hmmmm. 

And how can one profit from such sharp currency depreciation? Look at the chart on EWJ (Japan ETF).. lessons learned... a reverse of the chart from the Yen currency value!!!