USD/JPY spiked after Abe’s landslide victory on July 11 triggered speculations the government would announce a fiscal stimulus package to weaken Yen (support economy, combat deflation). Post Brexit drop in USD/JPY also triggered speculation the Bank of Japan (BOJ) would cut rates further into negative territory/expand QE.
The ‘reflation’ trade as called by TradeSignaller analyst on our Finance show - www.youtube.com/watch?v=zzIuBr7-... pushed up US stocks to record highs.
Reflation trade – borrow in Yen and invest in US stocks – has been noted on numerous occasions in history. Moreover, the rise in US stocks since late 2012 has been fueled by Yen drop.
We can notice on the chart above – the correlation coefficient between Dow and USD/JPY strengthened post July 11.
This makes us wonder if the drop in the USD/JPY seen today could pull Dow Jones lower with itself. Also note that USD/JPY could fall sharply if BOJ/Japanese government falls short of market expectations. In such a case, Dow Jones faces risk of a sell-off.
The ‘reflation’ trade as called by TradeSignaller analyst on our Finance show - www.youtube.com/watch?v=zzIuBr7-... pushed up US stocks to record highs.
Reflation trade – borrow in Yen and invest in US stocks – has been noted on numerous occasions in history. Moreover, the rise in US stocks since late 2012 has been fueled by Yen drop.
We can notice on the chart above – the correlation coefficient between Dow and USD/JPY strengthened post July 11.
This makes us wonder if the drop in the USD/JPY seen today could pull Dow Jones lower with itself. Also note that USD/JPY could fall sharply if BOJ/Japanese government falls short of market expectations. In such a case, Dow Jones faces risk of a sell-off.