Are Investors Buying Yen as a Hedge Against Stock Market Break?

The USD JPY was under pressure all week but it wasn’t the Japaneseeconomy which triggered the decline. It’s hard to pinpoint the reasonfor the weakness but it may be related to repatriation by Japaneseinvestors as a hedge against a possible decline in U.S. equity markets.

The USD JPY was under pressure all week but it wasn’t the Japanese economy which triggered the decline. It’s hard to pinpoint the reason for the weakness but it may be related to repatriation by Japanese investors as a hedge against a possible decline in U.S. equity markets.

Japanese investors may have been buying Yen as protection against major problems developing in the U.S. banking system. The release of preliminary stress test reports on the top 19 U.S. banks may be setting up the markets for excessive volatility next week which could trigger a break in the equity markets if news leaks out of problems at a major U.S. financial institution.  Although news of this sort will trigger a flight to the Dollar, investors will also be moving their funds to the Yen for protection.

Another reason for the strength in the Yen could be the fear that the U.S. may not be able to cover its growing debt. Next week the Treasury will auction about $100 billion of Treasury instruments. Based on the recent trading action in the Treasuries, there is also some concern that investors will be asking for a much higher yield than previously sought. It will be interesting to see if the Treasury can pull off this massive debt auction without causing negative ripples throughout the financial markets.

The lingering question is at what upside level will the equity markets have to trade to trigger a return to normal carry trade activity in the Japanese Yen?

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

Disclainer: