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This episode aired on Bloomberg TV on Feb 19, 2013

Abe Trade

Q. So this isn’t Abe Lincoln we’re talking about, but rather Shinzo Abe, whose Liberal Democratic Party came to power in Japan late last year. But why is there a trade named after him?

A. He promised to push the Bank of Japan to be much more aggressive in its own version of QE, to push down the value of the Japanese Yen and, presumably, push up the value of their stock market — because the products become more competitive overseas, and 50% of Japanese profits come from offshore. So, the “Abe Trade” is to sell Yen and buy Japanese equities.

Q. So this is really a classic “Global Macro” type trade, right? That’s the kind of hedge fund that would be in this?

A. Yes. Rumor has it that George Soros, Caxton, and a bunch of other global macro traders have done very well. Indeed, the yen is in fact down a lot, and the Japanese equity market is up a lot, in the past couple of months. So there’s a lot of buzz about the “Abe Trade” and how well its working.

Q. But its never quite so simple..

A. No. First, remember that although the Japanese market is up over 9% in the local currency, but only a little more than 1% in dollar terms. And second, its been super volatile over the past couple of weeks and has really gone nowhere lately– just as the trade started drawing big headlines, it got very choppy.

Q. But what does this big push from the BOJ really mean, bigger picture? It’s another effort by central bankers to push down the value of their own currencies..

A. Yes, as our friend Jim Rickards would say, another salvo in the currency wars. But I think the real question is whether any of this is really working? No doubt there’s been additional money going into financial assets like the stock market, and the crisis level is down a bit. But where’s the robust growth to go with all that money printing? That’s the question lots of people are starting to ask, including some influential Fed governors.