Wednesday, June 12, 2013

Yen Daily Volatility vs 5 Year Earnings

In the past week the yen has gone up about 4%, then down about 4%, then up about 4%. This is very high volatility.  Japanese bonds are paying 0.33% per year for 5 years, for a grand total, with compounding, of 1.66% after 5 years.  There were several days when the value of the Yen changed by that much in 1 day this past week.   When the daily volatility is about as much as the 5 year earnings, people should be rushing for the exits.   As people realize this and get out the central bank will make many more Yen to buy up existing bonds and new ones from the government.  The value of the Yen will drop faster.  More will exit bonds.   The central bank will print even faster. 

I have had hyperinflation as a hobby for several years now.  But it has been sort of theoretical and abstract.  It is amazing to watch things unfold in Japan as a real world example of how it works.  It is like we have a ringside seat at a slow motion train wreck.  Very strange and fascinating at the same time.  We live in interesting times.

Update on June 20th, 4 am:
     The Yen is down over 3% in the last 24 hours.   The 5 year bonds are paying 0.35% per year.  With 5 years of compounding this comes to a grand total of 1.76%.   The currency dropped about twice this in one day.  Only an idiot would hold JGBs.   Japan will soon have a shortage of idiots.

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