Ying and Yen

Posted | 13/07/2016 / Views | 3015
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Just when you thought it couldn’t get any crazier in Japan, the world’s most indebted country, courtesy of years of one of the world’s most aggressive monetary stimulus policies, is doubling down.

After a landslide victory in last week’s elections Abe signalled more monetary stimulus is on its way as the Yen has been surging since Brexit, and that doesn’t suit any central bank now does it….  On the announcement the Yen about faced and plunged by the biggest 2 day fall  since late 2014 when he previously flagged much bigger stimulus to come (and delivered!).  Predictably sharemarkets around the world rallied on the news – the free money game is back with a vengeance. Global shares are now back to above pre Brexit highs.  All rejoice.

There is endless speculation now that given the bond and equities purchasing program hasn’t ‘fixed’ anything in Japan, and has been so rampant that there really aren’t any more bonds to buy, that the only option left is ‘helicopter money’ whereby the freshly printed money is injected directly to the people.  Such is the desperation for inflation.  Coincidence or not, but the original proponent of that concept, ex US Fed chair Ben Bernanke (aka “Helicopter Ben”) was very recently in Japan as a guest of Abe.  Joining the dots….

Not surprisingly then there are reports of rampant physical gold purchases by the Japanese as they swap high Yen for gold before the Yen (and maybe their whole economy) drops further.  Sound like the set up somewhere else Australia?...  

Amongst all this ‘risk on’ bullishness, gold and silver came off a bit last night, but in the scheme of things only slightly.  Given how strongly they have run this year they could have been more susceptible to a bigger pull back on such a risk-on rally.  However the very basis of the sharemarket rally is ultimately very bullish for gold and silver as, yet again, it is based on central bank stimulus not fundamentals.  Japan, like most other developed countries is fighting a currency war where no one wins as they (we) all keep fighting to the bottom.  Our Aussie dollar jumped to over 76.5 overnight and has settled down to a still high 76.2.  There is no way the RBA are going to sit tight and let it stay there.  We are as just a part of the currency war as Japan.  One currency will stand tall in the end and that is gold and silver.  That has been the theme to 2016 and the Japan news just confirms it further.  Gold is the Ying to the currency war’s Yang.