Japanese duo diverges – Nikkei, Yen

Since Haruhiko Kuroda, governor of Bank of Japan (BOJ) announced Qualitative & Quantitative Easing (QQE), in end 2012 the Nikkei has outperformed. The index has outperformed many of the indices, returning near about 80% since then and the yen has depreciated against the dollar from below 80 to current 119 levels.

• It is noticeable that very high correlation exists among the duo, regularly above 80-90%.

• Nevertheless it is worth noting that in recent days the Nikkei has crossed over important 18,000 levels. It is currently trading above its high made in 2007 before the financial crisis.

• The yen so far hasn't reached the level of 123 of the same period. In recent time it has gone into consolidation phase.

• According to our view, yen may be experiencing safe heaven flow in this current turmoil of Greece situation, as it remains trapped between 116-120 levels. If the situation gets very adverse the yen crosses may suffer further from such flows.

The outlook overall remains bullish as the QQE by BOJ will keep the duo buoyant. We expect the yen to depreciate further once the uncertainty settles and market focuses on the central bank's diverging policy outlook.

Chart is added in support of the view.

Currently USD/JPY is at 118.6 & Nikkei at 18300.