“Jonathan has advised us for 5 years and always provided consistent, truly independent thinking with emphasis on capital preservation”

Tim Bacon (CEO, Colville Estate) and Marylyn Bacon (Kent) (2011)

Update to Japanese ¥ to Japanese share prices

Posted by jdavis on May 10, 2014

Around 3 months ago I wrote about the relationship between the ¥ and the Japanese stock market here.

I said then if the ¥ rises then the Nikkei will fall.  Let's revisit.

This is a brilliant chart.  The bold (upper) snake is the movement of the ¥ over the last 7 years.

The mirroring faint brown line is the Nikkei Dow.  It really is just like a mirror image.  The inverse correlation is almost 100%.


We can say, reasonably, as the ¥ strengthens the stock market weakens and vice versa.

For the following reasons we believe the ¥ will weaken massively (debasement of the currency?) over the next 5, 10 or maybe 20 years.

Thus, we believe the Japanese stock market will go stratospheric for the period.

For the following reasons:

1. The stock market collapsed for the deflationary generation of 1989 to 2012.  During this time the ¥ soared.

2. Japanese Government Bonds (JGBs) rose all this time.

3. The Japanese are now printing currency more than any other developed economy.

4. The ¥ started to weaken and the stock market soared.

5. They will print for as long as we can imagine...

6. All the Trillions of $ in JGBs - paying 0.5% p.a. in a likely inflationary era - will have to be sold to buy company shares.


Indications are that the ¥ is on the point of strengthening again and making the stock market tumble in 2014.  Maybe into 2015.  The market is down 10% so far this year.  If the ¥ does fly, contrary to where most portfolio managers are positioned, we could see a 30-50% fall in the Japanese stock market.  THAT SETS UP THE BUY OF A GENERATION!  And we will be there with both arms open to buying.


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