Japan Currency Manipulator: Trading Strategies, JPY/USD Currency (Term Paper Sample)

JPY/USD TRADING REPORT
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Table of Contents
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1.0 Introduction  PAGEREF _Toc412498673 \h
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2.0 Japan Currency Manipulator  PAGEREF _Toc412498674 \h
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3.0 Trading Position  PAGEREF _Toc412498675 \h
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4.0 Trading Strategies  PAGEREF _Toc412498676 \h
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5.0 Reflections and Trading Performance Conclusion  PAGEREF _Toc412498677 \h
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6.0 Benchmark Market Analysis  PAGEREF _Toc412498678 \h
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7.0 Record of Trades  PAGEREF _Toc412498679 \h
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1.0 Introduction
Japan is a highly developed country and has a unique economy with large manufactures exporting vehicles and electronics. Japan’s economy is starting to grow stronger as data from October 2013 showed that consumer prices, not including food or energy, have risen by 0.3% compared with the previous year; thus, making this the biggest gain since 1998; however, household spending continued to be mild due to incomes being slipped the previous year. The government reported that the core consumer price index increased by 0.9% from the previous year and also that both food and energy prices rose by 1.1% (The New York Times, 2013). Japan’s currency, the Japanese Yen, is the third most traded in the world, especially because of its low interest rate, and its national economy is the third largest in terms of Nominal GDP. With the current rise of South Korea and Chinese manufacturing Japan is focusing their attention on high-tech goods, making the nation considered one of the best in the world at using and creating new methods, ideas and products. The US dollar is the most popular type of currency in the world; it is the reserve currency that is the most dominant. Traders usually buy US treasuries if risk aversion is high; thus, creating higher demands for the US dollar (DailyFX, 2013).
Therefore, trading Japanese Yen with US Dollars at this time creates a high probability to earn more profit compared to trading with other currencies. The government’s policy is trying to keep the interest rate low; therefore, trading will be predictable and easy to manage (The Economist, 2012).
2.0 Japan Currency Manipulator
The criticism of the devaluation of the yen is occurring from abroad and especially in East Asia. The currency war began because Japan had an increase in inflation. The world has seen a sharp depreciation of the yen; it is inequitable for other countries and unsustainable. Japan has been operating currency to push the value of yen down, starting from Japan holding foreign-exchange rates and manipulating currency. As a result, the inflow of foreign exchange would be decreased by the external value of the yen. The graph below suggests that Japanese government have reduced the value of yen over the past six months.

Figure 1. Japan Foreign Exchange reserves
The government of Japan plans to utilise the foreign-exchange savings to buy bonds issued by European Stability Mechanism (ESM) and euro-area autocrats. Finance Minister, Taro claimed that the financial stability of Europe would support the consistency of foreign-exchange rates, including yen. Since mid of November the yen has slumped around 8% versus the dollar. The Europeans are delightful that Japan buy ESM bonds, though Japan can complete the objective and avoid the cavilling from abroad. In spite of Japan’s rise of GDP by 3.5%, the tacit Japanese price deflator decreased in the first quarter. As a result, if Japan is not applying low currency as an instrument to build inflation, then the calamity will come to Japan (Wolf, 2013).
3.0 Trading Position
A long position: The trader buys a currency, which expected that it would appreciate value and make a profit in the future. For example, if investor buy a currency = 0.009762 and sell it at 0.009769, that means the investor made a profit from a market (Hollar, 2013). A short position: The trader sells a currency, which expected that it will depreciate value and maintain the currency rate. In the short position the investor’s demands the currency decrease, then investors will make a benefit from the market (Hollar, 2013).
4.0 Trading Strategies


Figure 2. JPY/USD chart from 29 October 2013 – 28 November 2013
After keeping an eye on the yen currency for a while the chart above shows that the trend is declining so far. Thus, it was decided to start with short position on 28 November 2013 with support by the news. Since 2009, the dollar and Euro are appreciating the Yen; the dollar was highest at 102.28 yen and Euro highest at 138.83 yen. From the past through to the present, the dollar and euro have been rising about 4 percent against the yen. That means the currency of yen was depreciating. The economy in Europe is not stable but the euro crisis is reducing and recovering to a good way. As a result, Japanese investors prefer to take long positions in GBP/YEN and EURO/YEN than US DOLLAR/YEN. On the other hand, some investors taking yen short position because the U.S. economy is amelioration while the Bank of Japan continue keeping an ultra-loose monetary policy (Chua and Twaronite, 2013).
On the 29th of November 2013 trade was happening with the market open and in short position, a profit was made by closing the market in long position due to price falling. Predictions from the news about Japan was that the yen is close to the highest level in nearly six years on 28 November 2013, the yen recorded their best performance in November since 2005. As a result, the Japan index is up 0.2 percent. However, investors have been using the yen as a fund currency for hold trades (Lau, 2013). The good performance will help promote exporting and some late profit taking in Asia. Data on Friday 29 November presented that Japanese buyer inflation expedite to a five-year high and industry output increased, the recovery in Japanese economy will spread into 2014 (Reuters, 2013). Based on the good news it was decided to open trade with long position on 29 November 2013. The yen currency depreciated thus making a loss on 2 December 2013, meaning a top up amount around $6900 was needed to keep the price balanced with the maintenance margin. During this time there was a lot of tension in East Asia, especially between Japan and China. The position was kept open because the trend was still in the long direction the day before, and believed that there would be no effect and the trend would continue to increase.
At the beginning of the global trading today, the stock markets worldwide dropped and sent investors into the safety of the Japanese currency. The U.S. dollar slid against the Euro currency as well but the decline could be a short period. After the powerful factory report on Monday, investors concentrated on U.S. economic growth. According to Reuter’s information, the dollar fell 0.6 percent to 102.30 yen in Asian trading. In 2013, the dollar increased to 18 percent versus the yen and rose strongly over the past month. The Bank of Japan has the responsibility to make a simple policy that makes the yen the best funding currency for investor. The investors would buy the yen back when the signs of risk in assets, such as stocks, drop. The Commodity Futures Trading states that yen short positions were at the peak since July 2007. Furthermore, Detroit hit bankruptcy for a while and had issues with the retired staff. Then Detroit’s pensioner carried many protests outside the courthouse where the eligibility hearings took place in the U.S (BBC news, 2013). As a result, the dollar has fallen and made the value of the yen go up, and thus closed the trade with short position on 3 December 2013.
As the above information says, the trend to trade with short position has good opportunities. It was decided to open the trade with short position on 4 December 2013, as the yen held off a six month low against the dollar and having earlier raised in this week. Traders claim the downtrend in the yen survived intact thanks to the policy and expectations that the policy will provide even more stimulus next year.
In converse, the dollar fell against the yen while the dollar lose versus the euro on Wednesday as investors inspect U.S data which did not help the reduction of monetary incentive. Vecchio states that it was the lowest employment drop from 56.2 to 52.5 since March. Despite the slump, the employment rate has shown a huge drop in numbers but the investors are pulling dollar gamble on the government’s official jobs report on Friday 6 December (Reuters, 2013).
There are another two reasons why the yen appreciated on 5 December. Firstly, According to U.S. vice-president Joe Biden, “There is nothing inevitable about a conflict with China”, China declared a new Air Defence Identification Zone (ADIZ). last month, and claimed that aircraft flying pass the zone have to follow its rules. The ADIZ covers islands that are controlled by Japan and submerged rock by South Korea. The U.S., Japan and South Korea have declined Chia’s zone and sent the aircraft through the ADIZ (BBC news, 2013). After Japans coordination with the U.S. and South Korea by rejecting China, the yen’s value seems to be increasing.

Figure 3. ADIZ zone.
Secondly, the yen bumped away from the dollar as the dollar decreased 0.1 percent to102.25 yen. But Traders held their wager ahead of U.S. jobs report. Okagawa states that the yen would increase if U.S. jobs data were to dissatisfy, but the impact will be short period. As a result, the value of the yen went up and thus making a loss on 5 December 2013(The Reuters, 2013). It is a big loss, s...