AUTOREFRESH 
Extreme caution advised if USD/JPY crashes through 84.80
By Sean Lee || August 4, 2010 at 03:40 GMT
|| 16 comments || Add comment
A lot of people are hoping that the BoJ steps in to hold up USD/JPY but if they don’t, then this pair could be in for a very nasty fall. Such an event would also likely impact heavily on other pairs as well.
So if you’re at all worried about being able to manage your risk, the best advice is to reduce your exposure and that will give you much more scope to deal with increased volatility.
playing a real tight short trade on e/j now, then buy the...
, missiles could end Iran nukes
A Pentagon strike against Iran would rely heavily on the B-2 bomber and cruise missiles to try to destroy the regime’s ability to make nuclear weapons, analysts say, after the top U.S. military officer said a war plan is in place.The missiles, fired from surface ships, submarines and B-52 bombers, would take out air defenses and nuclear-related facilities.The B-2s would drop tons of bombs, including ground penetrators, onto fortified and buried sites where Tehran is suspected of enriching uranium to fuel the weapons and working on warheads.
http://www.washingtontimes.com/news/2010/aug/2/bombers-missiles-could-end-iran-nukes/
Agree Sean. With Noda-san abandoning even jawboning, we could see a climax low, and climax lows can destroy accounts that are not prepared for them. It’s okay to be long here, for the long term. But that means you have to be able to laugh at a 7x.xx handle, because there is no assurance it won’t happen. The proper stance is to be ready to take advantage of that handle if it comes. That means micro and small players get flat, or get out. This is not your arena, and if you think it is … well, more power to ya.
Has there been any sign of movement from the BoJ? How catastrophic would it be if that level doesn’t hold up?
85.5 is the perfect price for a tight strangle, buy 86 calls and 85 puts expiring next Friday NY cut.
Eric, there is no “catastrophic” here. Remember that while Japanese exporters get creamed with an expensive yen, oil in Japan purchased in dollars becomes cheaper every day. So, catastrophe doesn’t work, and don’t count on it to defend a long position that is highly leveraged.
Good point, Lance. (no pun intended)
I suppose that’s the nature of the beast though, wah-wah the expenses, hush-hush the bargains
zekelogan: there is a reason economics is called the dismal science.
Yeah I suppose all the raw materials for Japan’s exports will get cheaper so they may be able to reduce costs and thus still make money. Who cares about wage increases if the stuff you buy is getting cheaper? Maybe Japan is a “safe haven” model economy after all!
TFX data (http://www.tfx.co.jp/mkinfo/document/fx_sellbuy.xls) shows Japanese investors increased their long USD/JPY bets yesterday (78% -> 79.3%). Maybe that’ll pop above 80% before today is out.
Lance doesn’t that only work on the assumption that JPY gains against USD at a faster rate than oil gains against USD? Oil priced in JPY is definitely not cheaper than at the beginning of the week nor the month (same applies for month of July).
So if we assume your argument to be true actually, exporters have gotten creamed twice on this.
But the truth is, Japanese exporters like everyone else settle their raw materials contracts usually on a quarterly or at least monthly basis and hedge using futs/opts to keep their exposure at a specific price.
That means the issue is not just a matter of strong JPY or cheaper raw materials, that means the issue is a matter of market volatility! It is very difficult to hedge your book for even a month out when currencies are moving upwards of 1% a day and commods double or triple that.
sinner: Don’t forget that not everyone is an exporter. So, no, the yen doesn’t have to appreciate faster. Some people actually *import*.
I am confused. Are you saying oil is cheaper for Japanese importers now than it was 30 days ago?
Of course. Oil is priced in dollars, not yen.
If I am a Japanese importer, everything I hold is JPY denominated. If I want to buy 1000 barrels of crude oil, I have to sell some JPY, buy some USD then use those USD to buy my barrels.
Therefore, pricing it as CL/JPY. The cost for Japanese importers to buy USD using their JPY has decreased in the last month. But the cost of buying oil in USD has increased at a greater proportion than this. Therefore the CL/JPY cross has gone up, not down, for everyone, importers and exporters alike.
Lance:
30 days ago brent was at 72 USD per barrel USDJPY was at 88
Today brent at 82 USD per barrel USD JPY 85.30. So how can it be a cheaper oil in terms of yen?
Gee, now that I think about it Japan and Japanese companies are bankrupt. I wonder how they manage.