An Extraordinarily Volatile Market

01/22/2014 12:01 am EST


Jim Jubak

Founder and Editor,

The gyrations in this global market have reached historically high levels, which MoneyShow's Jim Jubak thinks makes investing in this country more difficult.

Volatility in the yen is extraordinary and the way that it's influencing the Tokyo market is even more extraordinary. For example, overnight on January 14, when the yen was stronger against the dollar, and remember that when the yen gets more expensive against the dollar, since we've got all these Japanese companies and investors that are expecting a weaker yen, you get the markets selling off, so overnight, the Nikkei went down by almost 3.1%, huge move in one day, on a stronger yen, weaker dollar. The next day, overnight, on the 15th, you had a stronger dollar, weaker yen, and the market went up 2.5%, so down 3% one day, up 2.5% the other day; these are just back-to-back days.

What's going on is, every time you get a bit of economic news about the United States, which might influence the question of whether the dollar is going to get stronger or weaker, whether the fed is going to raise rates, whether the fed is going to cut back on tapering, Japan is acting as a kind of multiplier that moves that in the US market on news like this about the event on a growth rate or the fed policy, which are producing moves of, like, 1%, .5%, 1.8%, are, when translated into Japan, because the importance for the Japanese market of currency is much bigger than it is for the US market, is just turning into a 1% change and the US is turning into a 3% change in Japan.

Part of what's really driving this is, the yen, right now, is trading at a very, very narrow range. The bottom of the range is 103 yen to the dollar; top of the range is only 105 yen to the dollar, and why this increases volatility is, because people are saying, “Well, when it gets through 105, it's going to go pretty quickly to 106, 108, 110,” the yen will weaken against the dollar, and that will drive up stock prices. On the other hand, if it falls through 103, and the possibility of going down to 102, 101—which would be a stronger yen, a weaker dollar, which would have a negative effect on Japanese stock prices—would be pretty high. The fact that these two important levels are so close together is increasing volatility in Japanese stocks.

If you're an investor who's looking at the longer term picture, I think the only thing you can try to do is to bite your thumb and just stay on board, because this is all short-term volatility. Over the long-term, I think the yen is indeed going to go down against the dollar and Japanese stocks will go up, but you can see tremendous volatility in between. This is really a test of whether you get washed out before the long-term trend has a chance to positively affect your portfolio.

This is Jim Jubak for the Video Network.

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