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  • The year 2015 saw a record 2,508 mountaineering accidents in Japan.

  • A grim product, declare the authorities, of an ever larger number of people ascending to great heights

  • without checking the weather

  • With the UK referendum on Europe looming, something similar is happening in currency markets

  • Trading floors everywhere are girding themselves

  • for volatility around the referendum result

  • especially if the result is for leave

  • sterling moves could be banked upon to be explosive in that scenario

  • spreading tumult across the G10 currency basket

  • But it may ultimately be the yen, and any resulting act of

  • market intervention by Tokyo to weaken its currency

  • that detonates the biggest blast

  • The language of manipulation is already in the air

  • and traders are dusting off their Ministry of Finance intervention lexicons

  • on the assumption that a leave vote in the UK

  • will force Japan to act

  • The problem is that Japan has inadvertently built up a potentially

  • massive amplifier for big moves in the yen

  • at around these current levels

  • Despite rising claims to the contrary

  • Abenomics has not been a complete failure

  • The past 3 years of yen weakness have helped corporate Japan

  • accumulate an all-time record stash of overseas earning

  • retained in other currencies

  • Analysts put the combined hoard at about 50 trillion yen, add that to the 20 trillion yen

  • of foreign stock investments built by Japanese investors

  • in the 20 months up to March 31st this year, and you effectively have

  • an impressively mountainous short yen position

  • This is where the dangerous weather conditions come in

  • For the moment, that huge position is not making an equivalently huge impact on markets

  • The yen has been climbing rapidly against the dollar and sterling

  • but not so quickly that this has forced Japanese corporates to unwind in a gush

  • Brexit could change that in the space of a few hours

  • and the once manageable mountain suddenly becomes very threatening

  • The yen would surge against sterling, but could move even more

  • violently higher against the dollar as global Safe Haven trades kick in

  • A break above 100 yen against the dollar is plausible, say dealers

  • and could put intolerable pressure on corporate Japan to

  • repatriate at exactly the point when markets least want yen strength to be exaggerated

  • Given the close correlation between the yen and the equity market

  • the Japanese authorities may have little choice

  • but to intervene and sell the yen for the first time

  • since the 2011 Tōhoku earthquake

The year 2015 saw a record 2,508 mountaineering accidents in Japan.

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Brexit could cause yen shock in Japan | Short View

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    Kristi Yang posted on 2016/06/22
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