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WINSTONE financial

Abenomics and the Japanese Yen

November 5, 2014 14:13:00
By Winstone Group Inc. | Attorney Salazar, Alberto

Based on discussions with Tokyo, Singapore and Hong Kong clients in the investment banking industry, the goal is to demolish the yen. Here is the analysis on the Japanese U.S. Dollar exchange rates as of last Friday. It is subject to change as soon as the Fed and the BOJ makes changes to its monetary policies.

Last Friday afternoon, Mr. Kuroda promised that the BOJ would:
(1) Increase the monetary base by JPY 80 trillion annually (over 16% of GDP), up from the previous commitment of JPY 60-70 trillion.
(2) Increase its JGB (Japan Government Bonds) holdings by JPY 80 trillion annually, up 60% from the prior allocation.
(3) Lengthen the average remaining maturity of its JCB holdings to 7-10 years, up from the current goal of 6-8 years. Before Mr. Kuroda arrived at the BOJ, the average maturity was under 3 years.
(4) Triple the annual purchases of EFTs and J-REITs.
(5) The aforementioned actions will continue until further notice.

On the same day, the Government Pension Investment Fund of Japan (GPIF) announced it would reduce its holdings of Japanese Government Bonds (JGB) from the current 53% allocation to 35% of its JPY 127 trillion in assets.

The GPIF will sell its JGBs holdings at a pace slightly below the additional purchases by the BOJ. The GPIF will invest the liberated funds into the Nikkei stock market until June 2015.

Immediately after these impeccably coordinated announcements, the Nikkei stock index instantly jumped 5%, the Yen collapsed by over 3.5%, and the JGB yields dropped further.

According to the Financial Times and confirmed by several of our clients in the investment banking industry in Tokyo, Singapore and Hong Kong, the goal is to demolish the yen. It seems to be working. As long as the aforementioned policy is in place, the JPY 115 to 119 range would be expected until the end of December 2014.

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