Who us? Weaken the Yen? Never--or at least that's what Japan will argue to angry leaders at the G20 next week

02/08/2013 6:29 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Traders used comments by Japanese Finance Minister Taro Aso that the yen has fallen too fast as a reason to take profits in Japanese stocks today. The Nikkei 225 index closed down 1.8% today after climbing 7.29% in 2013 through the February 7 close.

The target of Aso’s comments is next week’s meeting of the leaders of the G20 economies in Moscow. Ahead of the meeting leaders from South Korea, Russia, and the EuroZone nations have warned that they might be forced to weaken their own currencies in response to Japan’s move. “The yen’s sudden move from 78 or 79 to 90 was not something we anticipated,” Aso told Japan’s Parliament today. The yen moved up 1.01% against the dollar today.

I think Aso comments are transparently disingenuous. Prime Minister Shinzo Abe ran on a platform of directing the Bank of Japan to pursue a weak yen policy and has secured the early resignation of the governor of the Bank of Japan so it can put its own weak-yen candidate in that position. I don’t see any real retreat from the weak yen policy in the cards.

But I do expect Aso to try to talk the “it’s a surprise to us” excuse in the run up to the G20 meeting set to go from February 14 through February 16. Lots of countries are upset with the weak yen policy and I’d expect Aso to say anything he can to deflect criticism. One early line with promise is the “The Japanese economy is in a recession; we need to do whatever we can to end that downturn.”  I think that will play well in closed door discussions with G20 finance ministers.

The G20 summit is likely to lead to comments that will—temporarily—strengthen the yen. And any move up in the yen will lead to a temporary retreat in the Tokyo market. I’d use any move lower as an opportunity to initiate or build positions.

Any strengthening of the yen is likely to be very short-lived.

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