Most of the discussion trying to determine if the U.S. is Japan 20 years later focuses on the economy and the stock market. However, one of the biggest and most persistent correlations between Japan and the U.S. are the Japanese Yen and the U.S. 10 Year Treasury Yield. I think it is essential to really try to explore this relationship to help determine “How Japanese are we?” With the US $ in decline, it is hard to imagine the continued persistence of this dynamic. (Thanks reader teramonagi for catching an error.)
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| From TimelyPortfolio |
For additional thoughts on Japan, please see my post Japan Intentional or Accidental Pursuit of Deflation.
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| require(quantmod) | |
| #get Japanese Yen daily from Fred http://research.stlouisfed.org/fred2 | |
| getSymbols("DEXJPUS",src="FRED") | |
| #get US 10y Yield from Fred | |
| getSymbols("DGS10", src="FRED") | |
| Yen10y <- na.omit(merge(DEXJPUS,DGS10)) | |
| #define colors | |
| #use derivative of indianred4 with alpha for Yen | |
| rgbnum <- col2rgb("indianred4") | |
| col.yen <- rgb(rgbnum[1],rgbnum[2],rgbnum[3],alpha=180,maxColorValue=255) | |
| #use derivative of steelblue4 with alpha for US 10y | |
| rgbnum <- col2rgb("steelblue4") | |
| col.10y <- rgb(rgbnum[1],rgbnum[2],rgbnum[3],alpha=180,maxColorValue=255) | |
| #2 rows and 1 column of graphs | |
| par(mfrow=c(2,1)) | |
| par(oma=c(0,1,0,0)) | |
| opar <- par(mai = c(0, 0.8, 0.5, 0.8)) | |
| #plot the Japanese Yen | |
| plot.zoo(Yen10y[,1], type="l", | |
| xaxt="n", xlab=NA, ylab="Yen (US$/JPY)", | |
| col=col.yen, col.lab=col.yen, col.axis=col.yen, | |
| lwd=3,bty="n",fg = "gray70") | |
| #do grid for y | |
| for (i in seq(par("yaxp")[1],par("yaxp")[2],by=(par("yaxp")[2]-par("yaxp")[1])/par("yaxp")[3])) { | |
| abline(h=i, col="gray70") | |
| } | |
| title(main="Japanese Yen and US 10y Yield %",adj=0,outer=TRUE,line=-2) | |
| par(new=TRUE) | |
| plot.zoo(Yen10y[,2], type="l", | |
| xaxt="n", yaxt="n", xlab=NA, ylab=NA, | |
| col=col.10y, col.lab=col.10y, | |
| lwd=3,bty="n",fg = "gray70") | |
| axis(side=4,col.axis=col.10y,fg="gray70") | |
| usr <- par("usr") | |
| text(usr[2] + .12 * diff(usr[1:2]), mean(usr[3:4]), "US 10y Yield %", | |
| srt = 90, xpd = TRUE, col = "steelblue4") | |
| par(opar) | |
| opar <- par(mai = c(0.8,0.8,0.2,0.8)) | |
| #plot running correlation between yen and US 10y | |
| plot.zoo(runCor(Yen10y[,1],Yen10y[,2],n=500), | |
| xlab=NA, ylab = NA, | |
| lwd=3,bty="n", | |
| col.axis="gray30",col.lab="gray30",col="gray30",fg="gray30") | |
| title(main="Rolling 2 Year Correlation", cex.main=0.9, adj=0, col.main="gray30") | |
| for (i in seq(-1,1,by=1)) { | |
| abline(h=i, col="gray70") | |
| } | |
| axis(side=4,labels=FALSE,fg="gray70") | |
| par(opar) |
