There Will be No JPY Black Swan

Everyone is talking about The Yen's Looming Day of Reckoning by Andy Xie in which he spells gloom and doom about Japan and the yen. Japan's economy has indeed been trapped in a prolonged period of sub-trend growth and deflation. The strong yen makes things worse by reducing the competitiveness of the country's exporters.

But why a catastrophic collapse? In late Dec in Japan Nov Trade Deficit Worsens - Usd/Jpy to Turn the Corner Soon we thought the government or the BOJ should take steps to weaken the yen, which would impact positively Japan's economy and its exporters, which in turn can jump-start an outperformance of

Japan Nov Trade Deficit Worsens - Usd/Jpy to Turn the Corner Soon

The market is ignoring this fact, but Japan's trade deficit in November was a record JPY 685bn according to statistics published yesterday on Ministry of Finance website. If the trend continues, Japan will find itself in the twin-deficit predicament of the US. Just as a reminder Japan's fiscal position is among the worst in the developed world, with Debt/GDP of close to 200% (which is worse than troubled Italy). Most of the government debt is held domestically, so it is unlikely to be under pressure, but the currency should definitely start weakening. In fact the last time the Bank of Japan intervened to sell the yen when the FX rate broke 76.00 on Oct 31, contrary to popular expectations, the market did not reverse most of the move and has only briefly broken 77.00 since. I would be a buyer of Usd / Jpy around 78.00 with an initial target of 92.50