I figure I need to make a continuously updated post on USD.JPY too, with such a heavy carry-trade position … and a huge shift in the past few days.

So here it is and I’ll copy some main points from previous post in here first.

Summary from May 2024

So in May 2024 my outlook was, the yen is definitely in a downward trend for the mid to long term.

And I was a big loser when it went from 100 to 150 within just 2020-2024 so I will make myself to be protected or even benefit from this moving forward.

(Couldn’t have known earlier though and just have to comfort myself by knowing that the money was spent on creating a stable life in Japan)

And I’m outlining 3 scenarios in the next 3 years:

20% – Back to ~120-130 (or lower)

possible if US cuts back rate to near zero. Not going to happen unless there is a hard-landing probably as terrible as ’08. I’m starting to become more in the soft-landing camp so I’ll put this around 20% probability.

40% – Staying around ~150-160

somewhat likely if nothing really changed too much. US is bound to lower rates near probably 3% eventually, and BOJ although unlikely to hike rates too much, 1-1.5% in 3 years seems natural – which should put the yen higher.

BUT with the trade deficit and probably foreign equities purchase from NISA not reversing in the next 2-3 years, the real demand will keep it going to balance out the narrowing of rate differentials – as demonstrated during 202404-06 when the rate differentials narrowed but the yen still went down 3% against the USD.

40% – Up to ~170-180 (or further)

not unlikely at all if the US inflation persist and the rate cut is slower than everyone expects. With a Trump presidency, world power divisions, higher tariffs, higher oil prices, higher military spending … I think it’s actually absolutely feasible that inflation sticks around 3-4%+ and rates need to stay around 4-5%.

The current yen price already priced in 2 cuts in 2024 and more in 2025-26, so slower cuts will drive the yen down.

Meanwhile BOJ is still probably going to be dovish no matter what, and as mentioned in previous post, in the background it’s probably US and Japan’s “agreement” to lower then yen and get production away from China and into Japan, especially in the semiconductor sector, to fight against China’s military advance and completely obliterate them.

My Plan back in May

I wanted to cancel all my liquid JPY positions and possibly short further to cover the ¥20M real estate holding, which is up to ~HKD1.2M or ~60% of portfolio value.

Right now it’s at HKD500k or ~25% which is exactly my liquid JPY positions.

Also hope to find a dip where fed lowered rates or something changed and it slides down to say 140 or even 130. I don’t quite see it going to 120 so my strategy probably looks like:

• -4% (10k USD) @ 150
• -4% (10k USD) @ 145
• -4% (10k USD) @ 140
• -4% (10k USD) @ 135
• or 20k USD by end of year if stay around ~155-160 by end of 2024

Updates from July 18th 2024

So as kind of expected (or even quicker than expected), the yen went back to 160 by late June.

I was a bit rushed and saw from the technical analysis side it might explode, so I went in buying $10k in June

Unfortunately a huge sentiment shift happened with the new CPI data and along with a perfectly timed intervention, it dropped to 158 immediately.

I thought it’d be just a dip so I dip bought another $10k at 158.4, which got me burned as it continued free-falling to 155.5 at the time of writing.

Looking back to May’s analysis nothing changed at all.

To be honest I was too over my head and should’ve held those $20k for 150 or 145 as planned, or at least waited until the end of the year.

Same as the conclusion I had in the last post, I need to not make long term investing decisions based on short-term technical analysis. At least not the day chart for sure.

With the move down to 155 and who knows potentially down to 150, it could be a USD500-1000 mistake – which is huge but not life-threatening.

I’ve sold some US stock in the rakuten account to cancel some USD.JPY longs as well so it’s actually kind of rebalancing it and it’d turn out to be a USD500 mistake at the most in this case probably.

Anyways the 3-year thesis have not changed – 40% to 170, 40% staying 155, and 20% down to 130. Meanwhile I’d have earned 2-3% differentials per year.

Jul22 mini-update

It went back to 157.5 briefly before going back down to 156.8 right now. By the way the new trade balance data is out and the trade is actually at surplus now due to huge inbound tourists.

Also with Trump’s comments about wanting a weaker dollar, the USDJPY pair hasn’t gotten much strength to go up lately.

Anyways I just need to keep revisiting my thesis – US inflation persisting, cheap yen as a national strategy to take production from China, and continuous digital trade deficit. And need to remind myself I’m just covering my yen assets, so it’s a protection trade more than an aggressive assault.