It is sheer casino herding.

fertieg97

China sold a record amount of Japanese debt in August,[link widoczny dla zalogowanych], snapping a seventh-straight month of purchases.
So then who is buying yen? My guess now is specs big time. The new simple story governing markets is ‘Helicopter Ben and his QE II.’ It is amazing to me how all the hedge funds and prop desks who were so wildly bearish on Europe a few months ago are now acting like they never were concerned about Europe and all that matters is Fed QE — which isn’t here yet,[link widoczny dla zalogowanych], and which might not have any impact as a recent Richard Alford article suggested. It is sheer casino herding. And that suggests to me that it is occurring through blind selling of the dollar against the yen,[link widoczny dla zalogowanych], and macho attempts to herd the rest of the crowd into the famous 1995 79.75 price point which is totally meaningless from a fundamental point of view.

China cut Japanese debt holdings by a net 2.02 trillion yen ($24.5 billion), the Ministry of Finance said today in Tokyo,[link widoczny dla zalogowanych], the biggest monthly sale in data going back to 2005. The larger nation bought a record 735.2 billion yen of Japanese debt in May and 1.04 trillion yen of the securities the following two months.

Here is something interesting. The Chinese have reversed policy on diversification into the yen. It was my assumption that the Japanese government’s objections would be acknowledged by the Chinese and that they were not the most recent source of yen strength — at least as of three weeks ago. When I saw that the Japanese intervention had no follow through, I feared the Chinese had continued to buy yen. This article below suggests something to the contrary.
“Today’s ministry report suggests China had purchased yen- denominated assets not to diversify their foreign reserves but to temporarily escape from the unstable financial situation in Europe,” Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo, wrote in a report today.
Related postsChina, Japan and the US: Chinese Revaluation and Shopping Spree in US
Chinese central bank fleeing into Japanese yen for reserves
More on China’s reserve holdings, banks and infrastructure
Asian Security Issues May Undermine the Japan
Did the MOF Signal No More BOJ Intervention (Near-Term)?
I now think that the Japanese government isn’t stepping up to offset this spec bandwagon because it will have to do make two major policy departures. First, it will have to steamroll over the Bank of Japan to the point where it destroys the latter’s independence. Second it will have to tell all the other countries who are disapproving of its intervention to take a hike because the yen is super strong and their currencies are not. Post-war Japanese politicians have been too timid to do either as they still live down their bloody militaristic past. But I think that Japan is at the breaking point in this regard. In any case,[link widoczny dla zalogowanych], I think now is the time to be looking at a bunch of cheap Japanese stocks that could weather something of a recession fairly well and which will soar in profitability if and when the yen turns (as I think it must).
My experience is that when the bubble era market gets like this it gets to its price point but only with unsustainable over-positioning, and that it carries the simple story too far and something comes along to blow up the simple story, though that often takes a long time.
Helicopter Ben and his QE II having an effect on Japan and the yen