This could be the most glaring price anomaly on the planet
If you are looking at what could be the most glaring price anomaly on the planet, it is the Japanese yen. It hit its worst level in over three decades in July at ¥161 and has since moved to ¥145, and this story is not over yet .
Despite the recent slide in the stock market in the aftermath of the most recent Bank of Japan volley, it has staged a comeback, and the Japanese government just raised the economic outlook there for the first time in 15 months. The impact of the ultra-weak yen has been brutal — triggering a +4.3% YoY boost to unit labor costs .
What has caused the slide in the yen has been the financial repression engineered by the BoJ, but that phase has now come to an end — first via forex intervention and second by rate hikes that are far from over. The yen, as with most currencies that freely float, does revert to the mean. In this case, the long-run mean is ¥113, which means there is more than 20% left in the tank as far as yen appreciation potential is concerned. But as we all know, mean reversion, by definition, means moving through the mean in both directions and correcting one excess often requires an extreme move in the other direction.
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