vrijdag 7 november 2014

Correlation: USD/JPY Vs. Gold

Something fundamental has changed since the 2008 crisis. We see the creation of a yen carry trade on the gold price. Whenever the yen drops against the U.S. dollar, the gold price falls with it. This correlation only started after 2008.

Due to the high debt burden of Japan, bond yields should have gone up in Japan. This has not happened because the Bank of Japan has been buying the bond market with their QE monetary policies since 2013. The consequence was that bond yields in Japan kept falling while the yen deteriorated (this is what we call hyperinflation). These were the 2 perfect conditions to initiate the yen carry trade. Yen were borrowed, U.S. dollars were bought and equities were pushed upwards while gold was pushed down.

For more info on why Japanese bond yields can stay low you can read this.
http://www.levyinstitute.org/pubs/wp_818.pdf

In yen terms, gold has stayed flat.

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