Abe Vs Bernanke: Why Japan's Yen Target Means The S&P Will Suffer

This morning, in an understated way (of course) ahead of the G-20 group-hug at the end the week, Economic and fiscal policy minister Akira Amari stated “It will be important to show our mettle and see the Nikkei reach the 13,000 mark by the end of the fiscal year (March 31).” This level for the Nikkei implies a USDJPY level of 104.75 (or a further 12% devaluations for here). However, there is a strong correlation between the USD-JPY exchange rate and the S&P 500-to-Nikkei 225 relationship. Based on that 104.75 target (and the toungue-in-cheek belief that this will help Japan’s competitiveness – which means someone else has to suffer), the ratio of the SPX to NKY would be 8.7x. So while the Nikkei would see a 17% surge (in nominal value), the S&P 500 would lose 3-4% from here. 

Amari (and implicitly Abe) want 13,000 by the end of March – which is simply a Birinyi-Ruler linear extrapolation of the current move – this implies a USDJPY rate of 104.75…


and a USDJPY rate of 104.75 implies a NKY to SPX ratio of 8.7x…


which leaves the S&P losing as the NKY wins big.


It would appear that while Bernanke and Draghi prefer to lookon happily at their nominal market improvements, the Japanese seem to not give a toss that their policy is so explicitly about raising the nominal value of their stocks:

“We want to continue taking (new) steps to help stock prices rise” further, Amari stressed, referring to the core policies of the Liberal Democratic Party administration — the promotion of bold monetary easing, fiscal spending and greater private sector investment.


Not everyone can win in global currency wars.

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