In an address to parliament yesterday, Haruhiko Kuroda, the influential Governor of the BOJ, remarked that its ‘it’s hard to see the currency’s real effective rate falling further’. That sent the dollar yen into a tailspin, breaking back almost into its ‘comfort zone’ of 118-122. It closed near the 122.8 level and is currently hovering at the 123 range level. The ‘weak’ Yen policy has worked its intended purpose. Export-related companies have enjoyed market share gains on the global front. Capital and stock market investments into Japan from international investors have been accelerating. Even tourism has also enjoyed a strong and steady up tick, especially after the devastation of the 2011 Fukushima Daiichi nuclear fallout. Without a doubt, Abenomics is working. Just this week alone, markets welcomed better-than-expected numbers on both GDP and even manufacturing orders on machinery. With Japanese companies now well positioned with the country, the next direction of growth and expansion will now have to come from their involvement and investment outside of Japan. Last night, Tokyo Marine announced their purchase of US specialty insurer HCC Insurance Holding in a US$7.5 billion deal, the biggest foreign M+A deal by a Japanese company this year. This follows earlier deals like the Kintetsu – APL/NOL (Singapore) US$1.2 billion deal, and the Japan Post- Toll Holdings (Australia) US$5.1 billion acquisition. Even Japanese funds like the GPIF have been persuaded to buy equities in overseas markets! Kuroda’s statement clearly signalled his support for this next phase in this direction. He has effectively offered these companies some degree of stability, and perhaps even purchasing power (from a firmer yen), in their capital investment overseas. Off course, while his remarks may have put a ceiling on the dollar yen, he did classify that the yen was ‘weak enough’ based on the REER or real effective exchange rate. This clearly highlights the difficulty that any central banker has in the management of monetary policy in this environment. As we are still in a phase of ‘competitive easing’ of monetary policy, there are often more than two moving parts to any currency pair! This morning, the Japan 225 is signalling acceptance of a slighter firmer yen with a 1% rally in early trade. Beautiful!

MERS in HK—The Black Swan?

HK remains on red alert on reports of a possible MERS outbreak there. With news on this story continuing to develop, traders should try to avoid being scientists but instead look out for the possibility that funds may use this as an excuse to sell the markets there, registering good profits there on a year-to-date basis!
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