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The Facts Change, I change. But if They Don't, There's No Need

The Facts Change, I change. But if They Don't, There's No Need

2013-12-31 18:39:00
David Rodriguez, Quantitative Strategist,
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Talking Points

-BOJ Monetary Policy and Yen devaluation

-Macro views need time to pan out

-See the forest from the trees

In 2012, I chose the Japanese Yen as my top trade of the year, and that turned clearly in my favor. Yet it wasn't without its stress, and late-year volatility made me less bearish the JPY (bullish the USDJPY, EURJPY) as ideal. So what happened?

At the base of it, my stance on the Yen was founded on one simple fact: the Bank of Japan was far and away the most dovish of the world's central banks. A lost decade of deflation and virtually zero growth allowed former Prime Minister Shinzo Abe to return to office on a campaign of so-called "Abenomics". In short: extremely easy monetary policy and currency devaluation should help lift the Japanese economy out of its period of sub-standard performance. For the most part it can be called a success.

And yet there remains scope for further monetary stimulus, and the threat of further Bank of Japan easing should continue to put pressure on the Yen. So where did I go wrong?

These types of ‘idea trades’ can take a long time to pan out. You can't take a big macro forecast to trade hourly, daily, weekly, or even some monthly trends. After an astounding run higher late last year and through early 2013, the USDJPY spent much of the year trading mostly sideways. Yet the fundamental facts remained the same.

Ultimately, the USDJPY broke to fresh highs. And though I maintained a core long position from very early on, I began to shift gears far too early and cut exposure as the USDJPY broke to further highs through November and December. In effect I limited the amount of gains on what should have been an even-better trade.

If I hold a trade for literally months at a time, it's in retrospect foolish to start taking profits on a single week's gains. As long as the facts don't change, I will be sure to stay the course.

Written by David Rodriguez, Quantitative Strategist

Contact and follow David via Twitter: http://twitter.com/DRodriguezFX

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