Understanding USD/JPY – You Know You Need To

With Japan now out of the way….we can clearly see that markets don’t dig it. The Yen is powering higher which is the absolute last thing Japan would like to see.

A strong Yen is terrible for Japan ( as a strong currency is for any nation these days ) and suggests that money is actually flowing “out” of markets – back to the place where it was originally borrowed at 0%.



Think about it.

Let’s say you went nuts and borrowed thousands of dollars when the interest rate was 0%, then invested it in U.S Equities hoping you could make a buck. Months later your U.S Equities trades are flat at best, but even more likely sitting at a loss. Then you figure out……hey wait a minute – if we get an interest rate hike here in The States…this market is gonna tank! You sit there thinking…..man I better get the hell out of here, or I am gonna get killed.

Imagine if they actually DO raise rates in the U.S today? You are hooooooped!

How will I pay back all that Yen I borrowed??

So you unwind your trade. You sell your U.S Equities likely at a loss…..then you have to convert the U.S Dollars “back” to Yen ( at a new rate that also hurts ) and finally pay back your loan. This is the fundamental driver behind movement in the currency pair USD/JPY. This is why it’s been tanking since markets “actually topped” back in late 2015. Everything else has been pure distribution as the big boys and heavy hitters unwind their Yen Carry trade, and it’s taken more than a year to quietly do so.

You can see it on the charts  so clearly, and now that USD/JPY is at parity……things could get pretty ugly.

Clear signs that markets have more or less topped out – and have been distributing to retail “hopefuls” for the past full year.

Little mining stocks on fire….just getting started in the larger macro trend people so……go grab a couple!



12 Responses

  1. SS76 September 21, 2016 / 3:54 pm

    It appears though that GDX is following the broader market moves, as is Gold generally…you still think if the market drops that miners will forge higher? Support did hold for GDX, but its not out of the woods to rule out a leg lower to 22/23

    • Forex Kong September 21, 2016 / 4:10 pm

      I think so yes…or at least no further large scale moves down.

      Flat / sideways can go on forever so one always needs to be conscious of that.

      • SS76 September 22, 2016 / 6:49 pm

        Agreed. I took my profits here. GDX failed at the 50MA, as such I’m taking it as a sign of weakness for a leg down. May look at buying DUST before days out.

        • Forex Kong September 22, 2016 / 9:30 pm

          Nice work….although I “might suggest” taking a look at re entry in these miners as…..the larger / macro trend has indeed turned upward. Just an extended period here across the bottom.

          Watch em close….and take some of those profits you’ve made to take another stab!

          • SS76 September 23, 2016 / 3:18 am

            ya, thanks for the advice. That is my plan actually. I expect lower prices for miners so this is just a trade, but ultimately I’m eyeing the larger uptrend in GDX and will look to get back in. Figure the US$ heads higher into the first debate and approaching the next month or so, and then post FED in December the miners will be a good buy…but my thinking does change, this is just where I am at now.

          • SS76 September 28, 2016 / 1:39 pm

            GDX is very clearly following the market, not Gold……

  2. TJ33A2 September 21, 2016 / 11:09 pm

    Interesting perspective. Appreciate you posting. The negative loop that is Japanese high yielding funds forced into selling declining US equities to pay the outlandishly high yields to Japanese retirees/investors is a scary loop to have started.

  3. terry September 22, 2016 / 7:09 pm

    Hi kong, based on your explanation the USD should start strengthening now since rate hike risk has passed and funds should be trickling back into US stock markets? Also, S&P, Nasdaq and Dow have been on a bull run since march. Not too sure what you mean by “Months later your U.S Equities trades are flat at best, but even more likely sitting at a loss.”.

    i think fundamentals are just out of whack at this moment – crazy amount of liquidity in the markets pushing up the price of asset classes across the board. What is your case for a continuing bear run in USDJPY (on a 1-2 month horizon) based on the macro view you’ve explained in your post?

    PS: I am positioned for a USD bear but for different reasons. (firm rejection at 200SMA etc.)

    • Forex Kong September 22, 2016 / 9:28 pm


      This is too big a move ( over such a long period of time ) that the current day to day coorelations aren’t gonna cut it.

      It’s RETAIL couch potatoes trickling in here near the top that ( in my view ) keeps equities lofty….while the big boys dump.

      I expect both U.S Equities AND USD to fall in tandem….and Yen as well cmomods ( gold / silver and the likes ) to burst higher.

  4. terry September 22, 2016 / 9:24 pm

    also: I concur with your call on USDJPY bearishness but because of price action around the 20SMA signs of a crossover/ reversal of trend.

    • Forex Kong September 22, 2016 / 9:32 pm

      I won’t get long this pair – period so….perhaps flat here ( as all asset classes may just do the same ) mving into the elections.

      It’s a terrible time to go making any “bold calls” as……the election in the U.S has muppets pulling strings to such a large degree…..we can’t know what’s gonna happen fer sure.

      I remain short USD “in theory” and will taker as she comes.

  5. KC September 27, 2016 / 9:11 am

    kong, are you still short USDJPY or have you taken profit? This sideways movement is driving me crazy!

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