Speculators Invited

  • March 7, 2001
  • Marc Dupee

Feared for its prowess in manipulating the price of the
yen through massive market intervention, the Bank of Japan remains an
ever-present risk to currency speculators wishing to place bets that the value
of the monetary unit will decline. But a high-ranking Japanese official, Finance
Minister Kiichi Miyazawa, all but invited currency speculators to short the yen,
saying that he was not against a “natural” decline in the national
currency. While the BOJ and Japanese government officials are separate entities,
they are known to at times work closely to achieve desired economic goals. 

A cheaper yen would stimulate exports and help revive an
economy stalled for a decade and facing yet another bout of negative growth.
Recent economic reports have been bleak. Trade figures show that exports from
Japan have slowed substantially.  Once unheard of unemployment persists at
a record 4% and the Japanese consumer is spending less, doing little to
stimulate the economy on the domestic front. 

Just last week the Bank of Japan lowered interest to .15%
from .25%–nearly zero–for short-term loans to banks (the equivalent US rate
stands at 5.5% and at 4.75% in Europe). But the central bank’s
zero-interest-rate policy has had no discernible effect in jump-starting the
economy and the BOJ’s policy-hands are as good as tied with money already
essentially being given away.

An export-driven economy, Japan also suffered its biggest
contraction of exports with the US in nearly four years, another major negative
for the economy. With a weak government made even weaker after yesterday’s
second (but failed) no-confidence vote from the Japanese parliament, much-needed
political and economic structural changes will be all but impossible to achieve
for months if not years. One of the few options available to policy makers is to
devalue the yen, reduce the price of Japanese products and thereby, hopefully,
export away economic woes. Speculators welcome!

The March yen
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low, but closed just 8 ticks lower at a contract low of .8358. Further declines
in the futures were probably restrained by oversold conditions resulting from
the yen’s nearly 350-tick decline after it dropped out of a declining triangle
on the daily chart. With the government apparently on board for a cheaper yen,
look for further declines in this market. 

March dollar index futures
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.62 to 111.86 as the yen and European currency futures declined. 


Dow futures
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trading after one of Wall Street’s most influential bulls, Abby Joseph Cohen,
chief investment strategist at Goldman Sachs, chimed in with a recommendation
for clients to “increase their equity allocation” from 65% to
70%.” Dow futures closed 142.0 higher at 10,755.0.

Energies rallied after the API reported that US oil
stockpiles dropped to a 27-year low. April crude oil
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added .68 to 29.00,

heating oil
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unleaded gasoline
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Grains and especially corn slumped on expectations that tomorrow’s USDA
report will show reduced exports. May corn fell 3 to 220 1/4 and May wheat
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lower for a second day out of its Turtle Soup Plus One sell setup for a loss of
2 1/4 to 280.

Going the other way, Momentum-5
market soybean oil
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down day in the grains. Its gap opening and current hold above a short-term
bullish flag is constructive for a continuation play. 

I mentioned in yesterday’s “Futures Market Recap” that coffee
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was “showing range compression, rising lows, and a new probe to a
one-month high. Although this contract got sold at the top in the breakout area
in a Turtle Soup sell setup, coffee is at seven-year lows and is showing early
signs it could make a more concerted push to the upside out of its mini head-and-shoulders bottom.” Basis May rallied to a one-month high of
69.00 before settling .55 higher at 67.80.