Yen Strategy Ahead of G 20

Gold’s safe haven allure takes a beating as Cyprus seeks to raise about €400m in gold sales to fill the €13 bn portion of its total financial needs for the next three years. The rest of the €13 bn will be from raising corporate taxes and doubling capital gains tax.

Gold hits a three-year low against the S&P500, losing 42% from the 2011 highs. Expect repetitive testing of the $1525 support, before extending losses to 1440.
The arguments for further gold/equities loss were laid out earlier in the week here.

G20 Meeting: New Opportunity to Re-enter yen Selling
As we approach next week’s G20 meeting, expect BoJ Kuroda to assure G20 policy makers that Japan is not targeting its currency. Kuroda may even issue remarks such as “we are closely watching yen movements”, aiming to deflect attention from the Japan issue at the G20 statement by finance ministers. Note that Kuroda has wide expertise in verbally swaying the yen during his tenure as chief of International Finance division at the MoF.

Recall that at the November G20 meeting Moscow, questions arose as to whether nations will protest Abe’s quantitative easing. Apart from some criticism by China and Brazil, the G7 as well as the IMF gave Japan’s Abe full approval to escalate purchases, the result of which has been inevitable yen weakness. We may hear some details about whether the purchase of foreign bonds will be encouraged, but at the end of the day, the medium to longer term move remains yen weakness.

Expect knee-jerk buying of JPY to weigh on most yen crosses, which would provide traders with fresh selling opportunities in the Japanese currency. We may see a declines to as low 97.00 in USD/JPY, but only a weekly close below  96.20 would endanger the uptrend. 101.45 (high from April 2009) remains the next prominent resistance followed by 103.50 (April 2010 high).

The other Korean Problem?
Aside from North Korea’s nuclear threats, FX markets are increasingly monitoring South Korea’s soaring currency against the yen. The won hit a five-year high against the yen at 8.86 yen, up 23% over the last 12 months. The Bank of Korea is reluctant to ease interest rates despite concerns from the Finance Ministry set to roll out a fiscal stimulus to counter deteriorating economic weakness, partly arising from Pyongyang’s  threats. Thus, expect Seoul to be joined by Beijing in protesting against “weak yen problem” at the G20, which is another catalyst for further yen advances and opportunities to re-sell the currency particularly against USD & AUD.