Yen to replace Usd as best short sell
Only days after the Us dollar was officially declared, 'overvalued' by the Imf at the G-20 meetings in Scotland, the credit default markets are saying there may be an even more overvalued currency, the Japanese Yen.
News From Japan
'The yen is poised for its worst tumble since 2005," writes Bloomberg News, "as doubts about Japan's fiscal footing duplicate the cost of insuring its debt." The price of hedging against losses on million of the country's bonds with credit-default swaps has doubled since August, from ,000 a year to ,160 a year in November.
The rise in Japan's debt protection costs is in direct disagreement with that of U.S credit default swaps, where prices have fallen to the bottom level in a year despite narrative debt issuance. The spread in the middle of Us and Japanese credit default prices reached the widest in November after Japan's debt grew to approximately twice the size of the economy.
The rapid increase in credit-default swap premiums suggest the store may be expecting a credit downgrade from the rating agencies. Appropriate & Poors, Moodys and Fitch have been mostly silent on the subject. This is not surprising, as the corpse is often cold before the rating agencies' respond. However, there is no shortage of currency analysts willing to share their opinions on the yen's bleak hereafter with Bloomberg News:
Yen bears speak out
"We can't rule out the possibility of capital flight away from Japan due to its deteriorating fiscal position," said Yuji Saito to Bloomberg News. Saito is head of the foreign-exchange group in Tokyo at Societe Generale Sa.
"The Japanese fiscal situation is horrific," said Richard Benson to Bloomberg News, Benson helps oversee billion of currency funds at Millennium Global Asset supervision in London.
The yen's value "is not consistent with the underlying fundamentals, and that's a huge opportunity," said Michael Hasenstab to Bloomberg News, Hansenstab, who oversees billion in fixed-income assets for Franklin Templeton Investments, also remarked, "The yen is very vulnerable."
Yen's spectacular two year performance
Unlike the free-falling Us dollar, the yen has been a high-flying currency in recent years. The yen has gained 24 percent over the last two years. This makes it the best performing out of 171 currencies tracked by Bloomberg.
Growing consensus on yen's demise
But now, agreeing to many experts, the hot streak is over. In a recent Bloomberg survey, 34 out of 38 strategist saw the yen falling by June of 2010. Landesbank Baden-Wuerttemberg, the most literal, of the 46 Bloomberg-surveyed forecasters, predicts a 9.9 percent decline to 100 from 90.09 at the end of October. Goldman Sachs Group forecasts 105 in 12 months, a 14.8 percent slide from the Nov. 13 close.
Even more compelling, the red-hot currency strategists at Barclay's Capital, put out a note to carry-trading clients recommending they move from a diversified funding currency position (Usd, Eur, Jyp, Chf); to a totally short Jyp position.
This aggressive forecast is based on Barclay's confidence that the Jyp could be the worst performing currency over the next 12-month period. In expanding to the new Japanese government's planned narrative spending and borrowing even with tax wage falling, Barclay's expects the yen to weaken against the dollar due to japan's deflationary scenario requiring rates to be kept low for an extended duration of time.
Impact on Carry-Trade Strategy
It was acknowledged by the Imf and is widely known to carry traders that the Usd has come to be the favored funding currency for the carry trade. While both the Usd and Jyp highlight near zero level interest rates, the dollar has been decline in recent years while the yen has been appreciating. This is a compelling scenario for a value trader-buying back a weak dollar short and selling into a rising yen.
Conversely, it is a horror for a trend trader-abandoning a seven-year weak Usd trend to sell into an anticipated new, down trend in the Jyp. To decree this dilemma, we turned to our trusty neural-network trading systems. Meta Trader 4 Systems for Mt4 users, and Forecasttrader.com for non Mt4 traders.
Yen to Replace Us Dollar As Weakest Currency in 2010Tags : todays world news headlines
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