The U.S. dollar has not just met parity at 100/1 with the Japanese yen. It broke it, and now the yen is above 101 yen per dollar. This event has been a long time in the making and is on the heels of Japan’s own economic stimulative measures with endless asset purchases. What was a very overvalued yen currency is now getting devalued by the markets.
Japan’s current $1.4 trillion or so of inflation efforts and asset buying is creating a situation in the currency markets that we have not seen in quite some time. The last time we had dollar/yen parity was back in April 2009 when the United States stock market was bouncing heavily from the early 2009 selling climax lows. Now we see the parity challenge at a time when the Dow Jones Industrial Average (DJIA) and the S&P 500 Index are hitting all-time highs.
The moves in Japan have been unprecedented and for all practical purposes seem uncanny. The WisdomTree Japan Hedged Equity (NYSEMKT: DXJ) is up a whopping 33% so far in 2013, while the iShares MSCI Japan Index (NYSEMKT: EWJ) is up more than 20% so far in 2013.
The ProShares UltraShort Yen (NYSEMKT: YCS) exchange-traded product actually is leveraged two times (200%) of the inverse of the daily dollar price of the yen. This is up more than 31% year to date in 2013 and hit a new high since 2009.
On a personal note, would it be too much to ask the Bank of Japan to just split its currency 100-for-1 now? That would get the yen on par (or real parity) with the rest of the world’s major currencies. We won’t hold our breath on that wish.