Big Printin’ In Japan – $EWJ

by Dan March 7, 2016 6:03 pm • Commentary

Ya’all know whats going in Japan regarding decades of failed monetary policy, and the recent introduction of negative interest rates.  Abenomics seems like sooo 2012/2013 at this point, and it seems whatever the BOJ says at their meeting next week, it’s not likely to cause any material upward pressure on Japanese stocks.  Taking a look at the 5 year chart of the Nikkei you can see the massive impact easy monetary policy had on stocks from late 2012 until mid 2013, and then a reload on easy money in late 2014 till mid 2015.  I guess the main take-away was that it was just monetary easing that made the initial commitment so helpful to the value of risk assets, but also the promise of fiscal stimulus and structural reforms.  Much of the world would love to implement the trifecta, but at this point for a whole host of reasons it just isn’t possible.

In 2015, much like here in the U.S., Europe and China, it all fell apart, at least the backstop for owning stocks predicated on easy monetary policy:

from Bloomberg
from Bloomberg

The battle lines in the Nikkei are clearly drawn. 16000 appears to be important support as a prior breakout level, while the uptrend from its late 2012 lows should serve as important technical resistance. Any way you slice it though, the index is in a sharp downtrend from the 15 year highs made last year, still down 19% after its 13% bounce off of last years lows.

Options Action:

The largest trade in the options pits today was in the EWJ, the iShares MSCI Japan etf. When the etf was $11.40 a trader bought to open 55,000 April 12 calls for 9 cents to open, or about $500k in premium. These calls break-even on April expiration at $12.09, nearly the break-even level on the year, and up about 6% from the trading level.

Regular readers know that we are not big fans of chasing unusual options activity, especially in long premium out of the money directional situations like this. I suspect this is an existing long levering up their position in the event of further strength out of the Central Bank Bonanza of the next week or so.