The rally in the Japanese Nikkei 225 since Abe won the election has been remarkable — and it’s accelerating.
Since mid-November, the index is up an astonishing 67% and it tacked on another 4.3% in the past two days. In short, the market has gone parabolic.
It shows three things:
- Money is being chased out of Japanese bonds
- The market believes Kuroda is serious
- Japanese domestic investors are flooding into stocks rather than overseas markets
The third point is the important one for now. When a market ‘goes parabolic’ there is no telling when it will stop. But like shares of Apple, it will end eventually. When it does, that will be the turning point for the yen.
If investors dump Japanese shares and go overseas, yen crosses will take flight once again. If they scramble back into bonds, it shows that the game hasn’t changed and the yen crosses could be DOA.
