First time I want to tell readers (how to read the market)
■2016 Year in Review Made Easy
“The Year of the Monkey will be a noisy year,” as the proverb goes,2016 was indeed a year of upheaval. If we look back at the dollar-yen market along with stock prices, the year started with a crash in Shanghai stocks that triggered circuit breakers, and just as it seemed to have entered a rebound phase,2 when the Bank of Japan implemented the infamous negative interest rate, it led to a sharp strengthening of the yen from stock declines.
In addition, we were troubled by plummeting crude oil prices. Triggered by the US shale revolution boosting supply, reduced demand due to China's economic slowdown, and the lifting of sanctions on Iran bringing oil producers back into the market—a triple whammy—1 fell below 30 dollars per barrel.
After that,3–5 months were a seesaw, butFRB (the Federal Reserve) continued to avoid rate hikes, and with the pace of hikes also expected to slow significantly, the dollar-yen exchange rate faced multiple declines.
And in6 month, the UK’s exit from theEU hit a year-to-date low. With polls suggesting a remain outcome up until just before voting, there was a negative surprise that caused a shock rally in the yen due to the negative news.
7 After July, the market remained stagnant, but in11 month, Donald Trump won the US presidential election, defying expectations, and the Trump rally sent prices sharply higher.
■ Insights to Read Between the Lines
It was a year of truly wild volatility,2016, and I think almost no economists could have predicted such rapid market swings.6 monthBrexit sent the USD/JPY below 100, and there were voices saying future yen could head to 90, no, 80, and that yen appreciation might never stop. After the Trump rally pushed it back to around1 dollar =118 yen, then expectations shifted to130 or even140 yen, with bullish outlooks increasing.
Thus, with such fluctuating forecasts from economists, predicting the market over a year may be losing its meaning.
Recently, with the development of algorithms and AI, and with unconventional approaches in global monetary policy, traditional predictive methods may be losing accuracy. It feels like relying on classical thinking may no longer work well.
If you are confident in your own prediction, you could simply act accordingly without making it public...
Yet, even Yukimama has her own predictive biases, and she struggled to respond to the yen’s strength in the early to mid-2016 period. This reflection led me to avoid authoritative forecasts and preconceived notions about the market.2016 established this lesson.
Therefore, this series does not focus on what level rates will reach. It is better to read possible scenarios and risks to prepare for, as they emerge. I will explain in as much detail as possible the political and economic developments to watch in each country.
■ About the serialization and its contents
Now, I would like to share in detail what the upcoming installments will cover. The titles are as follows↓
Chapter2: Will the strong-dollar trend continue? (Notes on Trump policies)
Chapter3: The yen and the BOJ& What will happen to crude oil? (Saudi Aramco IPO)
Chapter4: The EU is in crisis but cannot collapse (European elections and the euro)
Chapter5: What Yukimama will do in 2017 (The NY Dow looks attractive)
Chapter2: In this installment, we will explain the dollar, which many of you are most concerned about. Given the rapid rise, many may feel uneasy. We will examine Trump policy highlights and key points of the US economy to watch.
Chapter3: As a continuation of Chapter 2, we will cover the yen and the BOJ, and also crude oil. We will discuss what the IPO of Saudi Aramco, the world’s largest market cap, means.
Chapter4: TheEU is in focus this year. There are rising concerns of EU collapse; however, considering the merits of the EU system, smaller countries find it hard to exit. We will analyze how the euro may fare.
Final Chapter5: For now, Yukimama’s current thinking and how to act in 2017 will be summarized.
That is all. I’ve worked hard to make this readable in the hope that it will be helpful to everyone, so please read through to the end.
