Yen and JGBs Short-Term vs Long Term

February 1, 2013

(This article was first published on Timely Portfolio, and kindly contributed to R-bloggers)

I have read some articles arguing that the recent move in the Japanese Yen is overdone.  However, considering the short-term without regard to the long-term context is naïve and potentially dangerous.  Although I do not have significant proof, I believe long-term mean reversion can completely dominate short-term mean reversion hopes.  Just to provide some longer-term context, I thought I would offer some graphical aids.

From TimelyPortfolio

In my mind, the Yen selloff is only in its infancy.  For the move to truly engage, I think we need Japanese Government Bond (JGB) yields to move higher also, and if it does we are in a different paradigm than the last 20 years.  But, what do I know?

R code from GIST:

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