The game of musical chairs known as “being Prime Minister of Japan” has landed once again on former PM Shinzo Abe in the eighth change in the country’s leadership since 2006. The move has created something of a frenzy as we’ve watched the Nikkei soar and the Yen plummet. Japan’s currency has broken below the 2012 bottom set back in March, hitting a new 20-month low, driven in no small part by Abe’s apparent dedication to further monetary easing. Via the Wall Street Journal:
Shinzo Abe, whose Liberal Democratic Party emerged victorious in Dec. 16 elections, said Sunday that Japan must defend itself against attempts by other governments to depreciate their currencies at the yen’s expense. Mr. Abe said a level of about ¥90 to the dollar would bolster the profits of Japanese exporters.
The dollar rose to ¥84.92, as the Japanese currency fell to its lowest level against the dollar since April 2011. The dollar has strengthened almost 10% against the yen since September, a move that coincides with the rise of Mr. Abe’s political fortunes.
In short, Jeff Gundlach’s long Nikkei/short Yen trade is making a killing. Although the Newedge CTA index is virtually flat on the month (at -0.06%), a handful of CTAs are definitely enjoying the trend. Last week we noted that Briarwood Capital Management was having a fantastic month, and their short Yen position (among others) has continued to benefit the program, which is up 5.67% through December 21 (Disclaimer: past performance is not necessarily indicative of future results).
This trade isn’t yet comparable to Gundlach’s monster short Apple/long natural gas call from earlier in the year, but we’ll definitely be keeping our eye on it.
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