AUDJPY still the ultimate barometer of risk on / risk off
We can argue back and forth on risk to the cows comes home, but the best way to observe how the market swings back and forth is to observe AUDJPY - the ultimate risk indicator.
Back in 2008 when Lehman hit the headlines the AUDJPY cross collapsed from 105.00 to 55.00 in less than four months. (Yes, please re-read this sentence - almost 50% down in four month).
Now we have had a major top in AUDJPY with divergence:
Furthermore we are running out of steam on the JPY weakness story. Talk is cheap as we have seen from policy makers in Europe and the US, but.... changing the most traditional society in the world is always going to be an uphill struggle, Japan has deflation in their "genes" as their demographics and tight immigration laws means that Japan's growth will have an automatic negative 0.5-1.0% of growth tendency every year, a burden which is impossible to lift.
Furthermore, the market is giving Abe too much credit for trying to change fundamentals, his real agenda is the election to the Upper House or as it is more accurately called the House of Councillors in July 2013 - securing a win there will catapult him into a true Japanese power player, not just as a reform politician.
All this being said we recommend buying AUD put JPY calls as per post earlier this week, respecting timing is of issue here
Finally let me remind you that February is the second worst month historically for risk: