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The hot trade of the last couple of months has been betting against the yen, and going long Japanese equities.The reason? Japan’s new Prime Minister has come in on a big mandate for aggressive monetary easing.
That trade has cooled off the last couple of days, but the chatter continues.
In addition to expectations that the Bank of Japan will be much more aggressive about easing, PM Shinzo Abe also continues to make noises about what the government itself can do.
For the latest, Kit Juckes of SocGen has the score:
Japan’s Finance Minister Aso helped put more colour on the plans for accommodation. It looks as though a total of a Y20trn package will be announced on Jan 11, and spice was added to the mix with a promise to use FX reserves to buy ESM bonds. Short-term, not enough to prevent a further yen correction. Longer-term, Aso and Abe are now painted so deep into a corner on the currency that they have no choice but to deliver on promises to act aggressively. So I think USD/JPY will get much closer to 100 this year, and the correction that could be unleashed if we break below 87 is the chance to get on board.
So big stimulus coming up, and even the US of currency reserves to buy European bailout bonds. Clever.