I wrote the following in a Macro Wrap on May 23rd, after Japanese equities had fallen 7% overnight:
Japan mostly matters because of what its easing program has done for the appetite of risk across the world. Here is a chart of the USD/JPY currency rate vs. the S&P 500 index over the last year:
USD/JPY cross vs. SPX index, 1 year daily, Courtesy of Bloomberg
I’ve circled in red the period in November when it became clear that Abe was likely to be the new prime minister of Japan, and his new policy of Abenomics was going to be employed. The yen started to fall (the USD/JPY rate going higher in orange), and the SPX started to move higher (in black), in lockstep with the yen moving lower.
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For now, I have the USD/JPY rate front and center on my screen. That’s the world’s risk barometer at the moment, for better or for worse.
Since then, most global asset prices have had a lot of back and forth action, but are generally in the same place. In the meantime, the USD/JPY has formed an obvious wedge:
On top of that, the currency cross touched its 200 day moving average for the first time since its liftoff last year:
In short, it’s getting quite close to decision time for the USD/JPY. The direction it breaks is likely also going to be the tell for the next move in financial assets into the end of 2013.