Yen Gains from Yield Spreads, Equity Flow and Fear

11/09/2017 11:16 am EST

Focus: CURRENCIES

Robert Savage

Partner & CEO, CCTrack Solutions

There is a fragile sense to the present market where the yen gains are based on yield spreads and equity flows and also on the beginnings of fear. Watching 112.95 in JPY for confirmation of mood reversals, writes Bob Savage, CEO of Track Research Thursday.

The Topix in Japan in Japan traded at fresh 26-year highs at 1844.05 and then reversed to close lower at 1817.75. This is not a sign of strength or weakness but volatility.

The uncertainty factor for 2018 is growing. This points all things related into play like the Japanese yen (JPY/USD) – and it puts the data from Japan on core machinery order weakness, China on inflation being higher and trade from Germany being more robust as potentially key fundamental stories.

The attention shift from easy money to shifting policy is also part of the story as the RBNZ moves up its CPI targets and ever so slightly its rate hike projections despite the talk of dual mandate shifts.

The European Commission and ECB speakers today sent the rate markets lower in Europe with outlooks for higher growth driving. The ECB Bulletin was more modest, saying domestic cost pressures remain subdued, but the point remains that higher growth eats into any excess capacity and drives up prices – forcing the question on policy to when not if rates rise.


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This is the day of pain for anyone who thinks bonds can offset equities. Both are down and both open up the question of how to hedge policy risks in an uncertain world.

The political noise from Trump in China – blaming the huge US trade deficits on past policy – isn’t the focus but rather the Senate and House tax plans and their viability as the press and the recent election highlight the troubles for both.

There is a fragile sense to the present market where JPY gains are more than just based on yield spreads and equity flows but also on the beginnings of fear. Watching 112.95 in JPY for confirmation of mood reversals.

Watch Bob Savage present How to Find Blind Spots in the Market and Your Portfolio at TradersExpo Nov. 2 here

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