It’s Raining Yen

The collapse of the Japanese economy in the late 1980’s and early 1990’s precipitated the flooding of the global markets with cheaper and cheaper Yen. That spawned the Yen carry trade which became an essential part of modern finance.

Traders borrow cheap Yen, sell the Yen for the currency in which their desired asset is denominated, and hope for the best. Most traders will leave their currency exposure unhedged because most expect the Yen to continue depreciating due to the interest rate differentials between it and other G10 currencies.

The BOJ has been the most aggressive unconventional money printer the world has ever seen. As a result Japan’s Debt / GDP ratio soared. I take issue with comparing a Stock (Debt) to a Flow (GDP), but I’ll leave that issue for another blog post.

After 30 years of doing more of what has not worked, the BOJ has finally hit the end game. Helicopter money is the direct monetisation of fiscal spending. The government spends money and the central bank creates the money out of thin air to pay for it. #Circular Reference at its finest.

Ben Bernanke, the high septon of helicopter money, visited his BOJ disciples and proclaimed that their next and only step is helicopter money. As details leaked to the financial press about what Bernanke advised, traders began whacking the Yen and markets globally forgot all about Brexit, Deutsche Bank, and Italy.

Recently Japan chief cabinet secretary Suga rejected the calls for helicopter money saying that the BOJ still had other options at its disposal. Maybe this is a tacit admission that helicopter money will surely destroy the Japanese economy. But Abe-san will get his way, and helicopter money is a foregone conclusion.

The trial balloon was floated, and the markets were ecstatic.

The shock devaluation of the CNY in August 2015 was the catalyst for the Fall 2015 Bitcoin rally to $500. The continuation of the CNY devaluation in 1H2016 combined with Brexit, took Bitcoin close to $800.

The expected and ultimate initiation of Japanese helicopter money is the catalyst that will take us over $1,000 in 2016. This process will not be quick. But the money will begin flowing in massive quantities out of Japan.

The assets favored by Japanese investors looking for wealth preservation will soar. Gold, Bitcoin, overseas property will all be bid by Japanese households. The notorious housewife FX speculators will rain Yen down upon any asset or commodity that accomplishes their investment goals.

BitMEX currently offers the only Bitcoin / Yen futures contract, XBJ24H. For traders, the benefit of trading XBJ24H is increased volatility. The monetary policy measures of the BOJ introduce extra volatility to USD/JPY, which leads to XBT/JPY being a more volatile Bitcoin pair.

BitMEX plans to introduce longer maturity XBJ futures contracts. Those who believe Bitcoin volumes and price action will be set at the margin by scared Japanese savers will benefit from going long these contracts.

The fact that China will have to respond with an ever weakening CNY to protect their exports is another plus. China alone carried the Bitcoin torch in 2015. In 2016, Japan will join the party in earnest.