George Soros & the Japan Market

The story began in the third quarter of 2012 when the Japanese Yen depreciated until the beginning of 2013 as the rising Blue curve shows.

As we all know, Japan has been getting into a negative interest era for a long time, partially because the terrible economic condition makes its government have to raise debts (I haven’t studied the Japanese problem. Once do that, I will update it.).

Since 2008 when the US saved the market through QE, the Japanese CB chose to conduct a similar monetary policy to boost its domestic market after Aben won the presidency.

Intuitively, Abenconomics applied QE would result in an excess supply of the Japanese Yen. Unlike the US dollar that backed with the Oil price, the excess money supply of the Japanese Yen would make it depreciate. Soros estimated that opportunity and shorted the Yen, and meanwhile took a long position of Nikkei stocks and bonds in the Japan Market.

QE would result in an extra money supply as we all know, investors who get that extra money would try to invest that money into the financial market, both the stock market and the debt market. As we can find that stock market increased with the depreciation of the Japanese Yen. Soros won the gamble.

However, there is a Winner and there must be a loser, which is the Japanese Central Bank. The failure of the monetary policy of the Japanese CB made worse its domestic economic condition.

In the current world, the CB of each country has to rigorously implement its monetary policy. QE might not be an ideal way to stimulate the market, because not every currency has the ability, like the US dollar, to back up with commodities and oil prices. Also, countries especially those that are in the EU are facing a conflict of interest in conducting monetary policy.