This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Global Macro: Japanese Jitters

Stocks in this article: EWJ VT FXY FXF

NEW YORK ( TheStreet) -- Japanese Prime Minister Shinzo Abe was once heralded as the white knight who would defeat Japan's prolonged deflation. His grand scheme, however, may be diverging off course.

The issue revolves around Japan's immense debt load. The country's current percentage of debt to gross domestic product stands at around 211%. Sales tax hikes were planned for 2014 in order to reform fiscal policy and cut into the astounding level of debt.

But in recent weeks, reports have surfaced that Abe is considering scrapping the tax hikes in an effort to keep consumer spending and GDP on the rise. Japan's most recent retail sales underperformed expectations, further evidence consumers may be vulnerable to tax hikes.

All of this uncertainty has pushed domestic equities lower and the yen higher.

The first chart below is of iShares MSCI Japan Index (EWJ) over Vanguard Total World Stock Index ETF (VT). This pair measures a basket of Japanese equities versus world equities. Around mid-July, the price action dove toward yearly lows.

The risk is that the Abe's policies will never come to fruition. Bondholders believed their investments would be kept safe through sweeping monetary and fiscal reforms. With the fiscal side now in question, instability could cripple investor sentiment and push riskier assets lower.

The inverse trade is a stronger yen. The chart below is of CurrencyShares Japanese Yen Trust (FXY) over CurrencyShares Swiss Franc Trust (FXF). Both the yen and franc are bought during times of market duress. The yen, however, is outperforming due to the additional monetary policy questions.

The market questions whether Abe will come through on his promises and whether his policies will be effective.

The yen has been considerably depreciated up to this point, and further question marks from Japan will continue to reverse the desired policy effects of Abe's original plan for reform.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a graduate of Georgetown University, where he earned a degree in Economics.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs