fundamental analysis
FX
ultimate resolution through armed conflict, the issue looks like it will continue to resurface whenever convenient domestically and/or provoked internationally. In terms of what to watch for, it should be noted that on two occasions since 2010, the Chinese government has encouraged mob protests that have targeted Japanese businesses and boycotted Japanese goods. 20% of Japanese exports go to Mainland China and as such, the nation is sensitively exposed in such events.
its first steps towards economic reform with the assistance of German businesses and economic advisor’s. No matter how distant and improbable, the prospect of a unified Korea would worry China on the basis that Korea has historical claims to the Manchuria region, is highly developed, extremely militarized and has the backing of the US. Opportunities to show strength to those reading between the lines, on a world stage, nonetheless, do not present themselves often and are duly taken when given.
Continuing with the North Korean wild card theme, reports have circulated in which the hermit kingdom claims to be conducting nuclear missile testing with the aim of being able to launch attacks that can target the US. Considering
that, just days previously, the islands issue looks to have reached an uncomfortable truce, the timing is uncanny. Educated in the West, leader Kim Jong-Un is said to favour economic reform but it is believed that an internal struggle is taking place where the Chinese backed military, fearful of having to justify its dominant role in a freer country, is proving to be an obstacle to further progress. From this perspective, the Senkaku/Diaoyu Islands disputes look to be just one part of a larger and more complex game of chess in the region.
IMPLICATIONS FOR FX?
The reports of peaceful overtures from the Chinese, followed by reciprocal moves from the Japanese, indicate that
the status quo will remain for now but short of Gus Farrow FX TRADER MAGAZINE April - June 2013 19
With Abenomics in full swing, the trigger-happy Aso in place as Finance Minister and a new regime in the BoJ, future tensions could be seen as an opportunity to short JPY on peaks, in anticipation of easing measures following hits to Japanese exports to and businesses in China. Likewise, similar positions in KRW and other regional exporters could be targeted in anticipation of retaliatory measures. As seen of late, aggressive easing by major central banks has left many emerging nations planning to take action themselves. In a tit-for- tat central banking environment where everybody is taking action but
nobody is “manipulating”
their currency, excuses to print are actively sought after, and four years after the financial crisis of 2008, easy monetary policy and its subsequent trends look to be here to stay, in the medium term at very least.
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