Another prediction from this week comes true

With the market not looking too hot, there has been a clear trend I have pointed out at least a dozen or more times in the Risk Asset update (our more detailed version of the CONTEXT indicator) and that has been a rising Yen as smart money unwinds the Yen carry trade, meaning they are delveraging risk and closing out the cheap funding source of risk on market moves. To close an open Yen carry trade, the last step (usually after taking profits in stocks) is to buy back the Yen that was initially sold to enter the carry trade. This has seen the Yen appreciate, something the Bank of Japan does not appreciate as it makes their exports less competitive.

I warned or maybe better said, predicted there would be some BOJ intervention as the carry trade unwind accelerates sending the Yen higher and Japanese exports lower. Sure enough, the BOJ has intervened tonight. The second half of that prediction/analysis was that is the past BOJ interventions in the currency market are short lived and not very effective. While it's too early to say, initially this looks like the shortest lived effect from intervention by the Japanese Central Bank.

The spike in the $USD equals a drop in the Yen/JPY, so the intervention was pretty short lived thus far.  If it just so happens that the BOJ is able to create a more carry friendly environment, the next question would be (this is somewhat rhetorical), "Would anyone care?" If you are deleveraging and the market is crumbling, what's the point of opening a new carry trade?

In any case, this is just another sign that another economy-the world's 3rd largest, is feeling the pain and will probably be made clear soon in trade reports and GDP as the Japanese who never really recovered from the lost decade to the lost 2 decades, try their hardest to intervene as it is likely their economy is feeling some intense shocks which should manifest in exports and GDP. Just another sign of the times, but if the CNBC talking heads want to continue arguing that the US has decoupled from the world economy based on several month old economic data which was heavily massaged with arbitrary seasonal adjustments, let them keep talking. Someone should ask them the question though, "As the rest of the world takes a turn for the worse, where exactly are American exports headed to?

China is finding out the hard way that their biggest trade partner is soon going to need net 30 billing, but in years instead of days.