Email of the day
Comment of the Day

January 22 2013

Commentary by David Fuller

Email of the day

On the Yen / Nikkei correlation
"While Nikkei and $/yen seem to have almost a linear relationship due to the heavy export orientation of Japan Inc., under what circumstances do you think this relationship might diverge?

"The 20 year chart overlay throws up some interesting divergences from June 1996 to September 1998 and again from March 2000 to January 2002. Would you be aware of what caused these divergences?

"Do you think a serious escalation of the island dispute with China may cause a divergence ie both yen and Nikkei going down?

"As always, your valued input will be appreciated."

David Fuller's view Your opening question is interesting but who knows? Perhaps other countries pressure Japan, although I would classify that as 'situation ethics', or those countries may once again partake in further competitive devaluations.

Rather than indulging in conjecture on your first two questions, I prefer to monitor the shorter-term price charts for both the yen and the Nikkei 225. They have lost momentum, not surprisingly, but have yet to break down.

Regarding "a serious escalation of the island dispute with China", that could have a short-term influence. However, with tricky political situations of this sort I try to put myself in the protagonists' mindsets. Assuming the leaders of both Japan and China are rational, and I do, why should they allow this situation to escalate? China's powerful and emboldened military presumably enjoys 'testing the water' in terms of territorial disputes, but a serious escalation would be stupid.

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