CurrencyShares Japanese Yen Trust (NYSEMKT: FXY) and ProShares UltraShort Yen (NYSEMKT: YCS) have a lot to win or lose based upon the new devaluation/inflation strategy of Japan’s politicians and central bankers. Today on Bloomberg Surveillance we saw the outlook on this matter from Goldman Sachs Group Inc. (NYSE: GS) via Goldman Sachs Asset Management’s Jim O’Neill.
The take is that the Bank of Japan absolutely must show it is serious about inflation targeting for the yen to weaken further. He also suggests that the Japanese Yen is oversold on a trading basis since its major move since November.
Most of the media has been busy covering other things besides the rise in the dollar against the Japanese Yen. Since October we have seen the Yen fall in value, with some 78 Yen per Dollar rising to over 89 Yen per Dollar.
O’Neill believes that the BOJ has to show that it is serious about a 2% inflation target. Having this as a goal is not enough any longer. O’Neill also thinks that it is important to see continued evidence of the U.S. doing better. He said, “To really get dollar yen north of 100 and higher, we need to sue the other side of it, that the BOJ is serious and that the U.S. is managing to strengthen despite fiscal tightening. Nothing is ever a one-way street, but the basis is very powerful for this story.”
The driving force may also be merely from perception and abetted by outside currency forces. O’Neill said, “I think linked to the yen weakness there are many collective things starting to come together. I think the decline of the franc is showing there is growing more retail confidence maybe that the European situation is stabilizing in a stronger way than perhaps many people talk about, otherwise it would be hard to understand the franc move. Of course more broadly, the franc for the whole of my career–over 30-odd years if not longer–plays this critical role of being the true test of global risk aversion. The fact that the franc weakening so much in the short space is another sign on top of others that we’re seeing a bit of a rotation of investor psychology about the whole fragility of the world or less fragility.”
The full Bloomberg video report is here. Today’s Dollar/Yen chart is provided by Yahoo! Finance: