There has already been a tremendous over-reaction in global stock markets. US stock and bond futures shot up, but these markets will in fact be little impacted at all by today’s BoJ decision.
Traders and investors may well be best served to caution such a rally in stocks with some portfolio lightening.
The reliably big move was of course with regard to the Yen, which has dropped sharply. This move lower in the Yen, is likely to be sustained and indeed become substantial. A move back to 135/137 is possible. There had been a tremendous build up of long Yen / short US dollar positioning.
This positioning will now be forced to unwind over coming days, and even weeks, should the US dollar generally find its feet again.
There are early indications this is the case against the Euro and other currencies. The biggest loser of the major currency bunch if the USD rallies is likely to be the YEN.
Given the combination of extreme mistaken speculative positioning, and the fundamental tearing away of the false economic veil of an aggressive BoJ.
The BoJ has shown its true legitimacy and class in not being railroaded by the market, but in fact acting appropriately in what is still an uncertain economic growth path, and still low inflation levels.
This has been a massive speculative play around the world to pre-empt an aggressive BoJ, simply because the Fed, ECB and BoE have been hiking. Japan has long been a different story and remains so.
Currency traders should be aware that there is immediately further substantial downside risk for the Yen.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
