The Failing Japanese Printing Press

Our clients have been following the close correlation between inflating central bank balance sheets and asset prices. Here's a few charts with some interesting implications.


click chart to enlarge

For some time now, the S&P 500 has correlated closely with the EURJPY exchange rate. The two have danced hand in hand, although note that in the January stock correction, the EURJPY headed lower before stocks turned down.


click chart to enlarge

In turn, that EURJPY rate has a long-term fit with the ration of Japanese central bank assets divided by European central bank assets. This relationship makes sense. If the Japanese are printing more than the Europeans, their currency will fall relative to the Europeans.

The chart that brings it all together is below for subscribers.

Subscribe to see the rest of this post.