Sand Spring Advisors LLC

Slouching Toward a Yen Devaluation

September 15, 2002

by, Barclay T. Leib

Believe it or not, there was a time not that long ago when talk of government stimulus in Japan would actually strengthen the yen. But those days are clearly behind us. Anyone paying any attention to comments from vice minister Kuroda this past week will have heard the words of a man desperate to do anything to rekindle Japanese consumer spending. Whether it be by explicitly targeting the creation of inflation, the creation of money supply, or most likely the devaluation of the yen, something simply has to be done to levitate the Japanese equity market off of its recent 19-year price low. And guess what, the currency is likely the easiest thing to monkey with -- particularly as weakening foreign sales into the U.S. leave fewer and fewer yen to repatriate.

Looking at the long-term monthly chart below, we continue to look for USD/JPY to reach 167.50-168.50 with time. The downtrend line off of Jan 2002 134.80-135.20 high -- currently in the 130-132 region will undoubtedly offer some resistance along the way, but ideally we'd look for 167.50-168.50 maybe to be reached by September 2004.


Chart constructed using Advanced GET End-of-Day

With gold recently having broken out to the upside once again, this should also make gold denominated in yen a solidly positive performer in the short-term (until Nov 7th at least) as well as perhaps in the longer-term (yen devaluation potentially being the longer-term driving factor). 44,770 near the 200-month moving average of yengold would be the next upside target to look for here. Also as one aside, as yen devaluation is further sniffed out by both institutional and individual investors in Japan, those with insufficient imagination or risk appetite to buy gold will undoubtedly rush into things like U.S. 10-year notes. So from a U.S. perspective, don't be surprised to see gold and Treasuries rallying together -- as odd as that may initially appear.


Chart constructed using Advanced GET End-of-Day

One small note to readers: We will be travelling in London for Monday-Wednesday this week and do not expect to have the time or where-with-all to update Sandspring.com during these few days. We continue to favor buying further equity weakness -- particularly should 814 be seen on the S&P into the week of September 20th -- in anticipation of a C-wave rally target toward 1002 on the S&P 500 toward early November.


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