Japanese Yen Causes Wild Commodities Movement

Baltimore, MD: In recent weeks, volatile swings in global commodities markets have left U.S. investors scratching their heads. While the financial media claims that up and down trends are signs of a bursting commodities bubble, one expert points to recent rumors of a Japanese interest hike.

“The Bank of Japan is signaling an end to its zero-interest-rate policy. Speculators who have been borrowing Japanese Yen are simply racing to the exits,” said Dan Amoss, a commodities expert and contributing editor to The Daily Reckoning. Amoss believes that traders are dumping assets in hopes to eliminate credit balances in Japan before rising Yen value and spiking interest rates spoil profitable investments. “Speculators are relieving the pressure on their short Yen positions through the liquidation of whatever assets they had been buying.”

A serious depression scare in 1999 caused the Bank of Japan to cut interest rates to zero. Savvy U.S. speculators and hedge funds took out enormous loans from Japanese banks and invested in a variety of international bonds and commodities. An export boom in 2004 and 2005 along with a recent tightening of liquidity amongst banks around the world have inspired the Bank of Japan to talk of significantly raising interest rates as early as June.

According to Amoss, this frantic liquidation is the “primary factor that has contributed to the recent volatility in emerging markets and commodities.” Although commodities like gold seem to have peaked earlier this year and are now correcting back down to normal, Amoss urges investors to hold on for the ride. “In the long run, gold isn’t going anywhere but up.”

Dan Amoss, CFA, is a contributing editor for The Daily Reckoning, Strategic Investment, and Whiskey & Gunpowder. Dan joined Agora Financial after serving as an analyst for the ICM Small Company Portfolio, one of the top small-cap value mutual funds over the past 15 years.

Brought to you by Agora Financial, and written by the New York Times best-selling authors, Bill Bonner and Addison Wiggin, The Daily Reckoning is a daily, free e-letter that weaves information about the financial world, investing, and everyday life into an educational and entertaining format that has been engaging their readers for over six years.

SOURCE: http://www.dailyreckoning.com