My confusion about Japan

 

If I “umm” and “ahh” long enough about something, my instinct tells me to stay away, especially when pondering about taking a trading position.

The longer that I look at Japanese politics and its economy, I can’t help conclude that’s it’s not a place to invest. I won’t fill this blog with stats in trying to prove my case. There is plenty of data covering Japan available for analysis.

Confusingly, Japan has suffered 20 years of deflation and at some point assets in that country should reach a point of being cheap. After all, it has iconic companies and brands that still have global marketshare and impact.

Yet, Japan has had 6 Prime Ministers in 6 years, it’s 10 year government bond offers a yield below 0.90% and it’s currency (Yen) is near its all-time high.

Why would you own these bonds and Yen?

“Umming” and “Ahhing” can help in telling you when to stay away but if the move in the pendulum is at such an extreme and fundamentals don’t warrant such a swoon, then rather than “watching”, a trade towards a reversion to the mean is worth a look.

What if the Yen weakened significantly and the yield on its 10 year bond tripled?

 

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: