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Japanese protect themselves
and convert Yen to Dollars
The Japanese play the yen carry trade themselves.
Until recently they would convert Yen to Dollars and purchase US Treasuries.
That trend looks likely to reverse, which should be very supportive of Gold.
If you thought watching the value of
the Dollar go down the tubes was bad, take heart, the Japanese have it much
worse than us.
Whereas the Federal Reserve goes about
its currency operations under the radar, the Bank of Japan (BoJ) openly admits
to ‘fixing’ its currency. How do they do that? They maintain a ridiculously low
overnight borrowing rate. How low? 0.50% per annum low.
Basically, that’s as close to free money
as we’ll ever see. And ofcourse banks and hedge funds are happy to back their
trucks up at the Ministry of Finance and load up on as much Yen as they can
carry -- hence the Yen carry trade! To make money all you have to do it beat
0.50% return per annum plus any appreciation of the Yen (which has been trending
lower since 2005).
But what do normal Japanese citizens do
to protect themselves against a government hell bent on destroying the value of
Get out of Dodge, that’s what they do!
Exchange their paper for anything that
will hold its value.
And where would that be right now?
Chart 1 - Nikkei breaking out -
Gold (below) will follow
A consequence of a weaker Yen is that
the export driven economy is revving up into high gear. That’s been good for the
Japanese stocks market and based on the above chart it’s about to get even
better!! The Nikkei is on the verge of breaking out.
Another area Japanese like to play their
stock investing games is an area of major interest to our readers – Gold!
Take a look at how closely correlated
Yen Gold is to the Nikkei Index.
Basically, if the Nikkei keeps moving
higher, Yen Gold will follow. And if its Japanese demand for Gold that is
driving the price higher, the HUI is bound to go along for the ride!!
More commentary and stock picks follow
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Greg Silberman CA(SA), CFA
I am an investor and newsletter writer specializing in Junior Mining and Energy
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This article is intended solely for
information purposes. The opinions are those of the author only. Please conduct
further research and consult your financial advisor before making any
investment/trading decision. No responsibility can be accepted for losses that
may result as a consequence of trading on the basis of this analysis.