This week's outlook The Trump era starts! Mr. Rikio Shima

Broadcast date: 2017/01/23 18:49

On Saturday, at the Monex seminar in Takamatsu, I was able to meet many people. Thank you very much.
In the panel discussion, regarding the outlook for the Dow, USD/JPY, and other financial markets, I sat with Monex Chairman Mr. Dai Matsumoto, Chief Strategist Mr. Takashi Hiroki, Mr. Yasuhiko Fukano, President of Financial Research Co., Ltd., and moderator Ms. Hiroko Ohashi; and all of them had bullish views on the incoming U.S. administration. For the USD/JPY high, 128 yen (Mr. Matsumoto), 130 yen (Mr. Hiroki), 120 yen (Mr. Fukano), 130 yen (Mr. Shima); and for the Dow high, around 22,000 to 23,000 dollars.

Many of you may know Hiroki's thoughts from TV, blogs, and newsletters. He is bullish. He argued that times will change greatly due to AI, and cited the Kondratiev wave (a roughly 60-year cycle of technological innovation). Indeed, our lives will be greatly changed by AI. Cars will become self-driving. Also, with the Trump administration's economic policies, an increase in interest rates is seen as unavoidable.

However, with Mr. Trump's presidential inaugural address, people were generally a little disappointed, but because the content was concise and short, there was the view that it represented "driving safely." Unlike the polished Obama speeches, it was easy to understand and there were not many unfamiliar words, so it was well received in some respects. While saying "Change," in a sense Obama did nothing, there may be more hidden Trump fans than expected. His approval rating is low, the disapproval rating is the highest in history, but the base support is as solid as bedrock, so there may not be much downside from here.

Indeed, market participants have rarely paid attention to speeches to this extent (no one listened to Bush's or Obama's speeches), or to the administration lineup (they have researched it more thoroughly than Abe's administration ministers). This is because this administration is so unprecedented and is believed to hold the key to the market going forward.

This morning on Morning Satellite, Mr. Horiko Eiji appeared as a guest, and he was also "nervous," right? About half of market participants think the same as Mr. Horiko and are ultra-bullish on the United States.

However, in his inaugural speech, he spoke only of protectionist ideas. Half of market participants capture that point and have a bearish stance on USD/JPY, as well as a mixed stance on stocks and the economy. I personally think the risk is enough, but for now it's a "sub-scenario" and not the main scenario. "Economic policy" VS "Protectionism"—these two extremes will swing the market this year.

From this morning, USD/JPY has fallen sharply and Japanese stocks have declined. This is the impact of Trump's protectionist, "America First" inaugural speech. Whether this is an overreaction or, since the administration's true intentions are there, USD/JPY will fall, is difficult to gauge. Last week, Chair Yellen emphasized further rate hikes, and incoming Treasury Secretary Mnuchin said Trump supports a long-term "strong dollar," providing two dollar-support signals.

As NAFTA renegotiations begin, companies with plants in Mexico will be hit. Today's decline in Japanese stocks will have a large impact. When the Nikkei falls, USD/JPY is also pulled down. Yet US stocks have not fallen. I myself briefly held a USD/JPY long just before, hoping for a Trump rally to resume, but that was a mistake. In principle, I should have closed the position immediately and ridden the mini risk-off from this morning, but I didn't feel right about it. Probably both bull and bear factors are at play, leading to a range-bound movement.

Since there isn't much upside, you can sell at higher levels, and since there doesn't seem to be a sharp drop, you can buy at lower levels; I'm thinking of a range-trading approach like that. I'm watching a range of about 113-116 yen.

The moves of the Trump administration will be the focus of the market going forward, and in terms of impact, economic indicators and such announcements are likely to have limited effect. Since the amounts involved are small, I will leave my current USD/JPY long position untouched for a while.