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Suddenly, Jim Rogers Has Developed A Yen for Japenese Yen and Japanese Stocks. Does This Make Sense?


One of my rituals on alternating days of the week is to use the elliptical trainer in my little exercise room and watch Bloomberg Television. This past Friday while watching it I saw the scroll at the bottom of the screen heralding “Jim Rogers says buy Japanese Yen, Japanese Stocks.” Being the information geek that I am, I went through my news searches to find out exactly what he said. All I saw was a title headline in Bloomberg, but no information linked to it (and sadly, no article was provided either). The most recent video discussion from Mr. Rogers (yeah, he does wear sweaters but he is not often thinking how wonderful the day is in the neighborhood) is right here. In it, he states his boiler plate stance about owning currencies and commodities, but does not mention specifically Japanese Yen or Japanese stocks. There is certainly a reason to buy Yen currently. Despite the downgrade in sovereign debt ratings because of the recent earthquake, the yen is still a relative safe haven from the potential asset bubbles in China and and the Eurozone debt mess. Purchases of currency and of short-term Japanese debt are up. As investors and institutions attempt to find safe places for money, the Japanese Yen indeed seems to be one of those places.

I think the thing that concerns me the most is the fact that Japan is so dependent upon export trade (as is the USA now) that any appreciation in currency probably hurts Japanese multinational corporations (automotive manufacturers like Toyota and Nissan for example). That is the point of the cartoon I pulled up (there were no cats on YouTube swallowing yen notes and I couldn’t find anything mildly humorous. I decided simply to make a point). One reason the Japanese Yen (JPY) remains strong is that its current account balance is at a pretty strong surplus. That surplus though, comes from investment revenues and NOT trade. That is one reason why the IMF is now concerned about Japanese sovereign debt as deflation continues.

I realize that Jim Rogers is a long-term (and I mean really long term) investor, but here is the great conundrum. It would appear that the Japanese Yen will continue to appreciate (as will the US Dollar) as long as there is a debt crisis in the European Union, but what does that mean in this case to the Japanese economy and Japanese stocks? If earnings do not improve in the coming year, does that not spell trouble for Japanese equities? Its hard to tell, but let’s take a look at the charts.

U.S. Dollar/Japanese Yen Pair (USDJPY)

Daily Momentum: Bullish (Positive)

Weekly Momentum:Bullish (Positive)

Monthly Momentum: Bullish (Positive)

Since making post-World War II lows, this pair has been rallying a bit, though the crisis in Europe likely had more to do with JPY weakness than did Bank of Japan Intervention (look at the monthly chart to see the path of JPY trajectory over the years. What is most important to note is that for now (on the daily chart) there does seem to be a bullish counter-trend rally in this pair (meaning the JPY is indeed weakening a bit, but it would appear that on a daily basis we could be hitting some near-term resistance at 77.945 (the 0.618 retracement of the first bullish price movement), but odds are decent that a rally to retest 79.478 could happen. With volatility increasing, the momentum model typically stays continuously bearish until a major reversal occurs. So far, that has not had one as yet. On a weekly basis, a break above that trend line which would include that 79.478 price would likely lead to a retest of 81.79. Sadly, none of my momentum models has yet been tested on the weekly basis yet, but the patterns tend to hold up over time. I think the key point to make here is that even if we break above that trend line, we are still operating in a bearish environment for the JPYUSD pair, meaning strengthening of the JPY could still continue after the rally.

What about the Nikkei 225 Index?

Daily Momentum: Bearish (Negative)

Weekly Momentum:Bearish (Negative)

Monthly Momentum: Bearish (Negative)

What we have is the exact opposite of the USDJPY. A bearish market that seems determined to retest its recent multi-year lows. On the daily chart, there is some loose confluence (and quite a bit of possible price symmetry) that might exist around the 7200 area. It might take a few weeks to get there, but it is quite possible that this low could ultimately hold. 7845 could be a support level as well. If Jim Rogers is holding Japanese equities here, is he expecting to accept a perhaps 10% haircut until a bottom is put in? Apparently so, because the market could easily retest the lows almost 2 years ago.

I think the conclusion to make here is that we are still dragging along bottom both with the USDJPY and the Nikkei 225. If the goal is to buy low and sell high, it is likely on the daily basis that we could see that work for the USDJPY, but that it might be awhile before we see the Nikkei 225 begin to be bullish again. In the end, it all boils down to following patterns and being patient for bottoms to kick in within the context of your time frame, not someone else’s time frame. For me, I would wait the Nikkei 225 out for another reversal, or wait until a Japanese stock I was following to make a double bottom before diving in again. We would likely need to see both forward earnings AND price momentum before buying.

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