A.G. EDWARDS & SONS, INC.
One North Jefferson, St. Louis, Missouri
314-955-3050
(February 28, 2002) CURRENCIES: One of the common beliefs about the yen is that it tends to rally from January into March. The rally comes from Japanese firms repatriating funds to "dress up" balance sheets. Thus, during the first quarter, whenever the yen rallies, market commentary nearly always mentions the repatriation as a reason for the strength.
It's a plausible story, and one that used to be true.
Yen Seasonal
Chart courtesy of A.G. Edwards.
The top line shows the indexed yen valued from the first trading day of January, for the years 1991-95. From that day until late March, the yen tended to, on average, appreciate by about 6%. In the early 1990's, the yen was in a persistent uptrend. In mid-1995, the yen fell sharply after the G-7 decided to jointly support a weaker currency for Japan. Known as the "Halifax Accord," the agreement brought a sharply weaker yen. The lower line on the graph shows the indexed average for the years from 1996-01. During this period, on average, the yen depreciated by about 5% during the first quarter. What the data suggest is the "seasonal" is not a seasonal at all, but a reflection of the underlying trend.
We have plotted the current year's index. While past performance cannot guarantee, assuming we follow the "seasonal" trend for the rest of the quarter, we should see the yen weaken. We remain short the June yen from 7530 and 7450, risking to 7600 with an objective of 7150. We are also long the June 7600 puts from 174, risking to 30 on the close with an objective of 400.
Bill O'Grady
www.agedwards.com