Thanks for the Murphy title. I will read that. Let's in the meantime assume Murphy's JPY and Japan scenario comes to pass. So the JPY rises relentlessly and in deadly fashion such that it burns the Japanese economy to a crisp, and forces them into massive restructuring. Alot of Japan goes BK. In this scenario, one might actually imagine that the JPY then collapses against other currencies after skyrocketing for a period of time. In other words, first the JPY turns Japan into a dead star. Then the JPY becomes a claim on a dead star. Which is to say, not a claim that anyone would want to own. As you say "no one is long the JPY." Indeed. So it really would be truly analagous to a black hole. Once the short-covering runs its course, there are no more buyers. And at that point, Japan is in ruins, with a currency uber-over-valued against everything else. So it only has one way to go. Back the other way.
Seen in this light, JPY strength is nothing more than a greater-fool trade on the long side right now. There is no claim on future income or value by owning the JPY. It's just a safety trade until the boundary is reached. Then poof, you reach the point where there are only 25 JPY to the USD, and Japan, in economic ruins, starts to see massive flight from the JPY as the purchasing power has blown way, way past fair value.
Love the title: The Weight of the Yen.
Final thought: JPY strength clearly melts the Nikkei. Unless JPY strength slows down, observers can see clearly that the logical endgame of Murphy could come to pass. So, in a world where most would probably like to competitively devalue, the USA and Japan are suffering short-covering rallies in their currencies. The farther it goes, the easier it is to observe the obvious outcome. Which means that the USD and the JPY are decidedly not investments.
G |
