Back in our conversation "Saint-Elmo's fire", our good cross asset friend indicated to us an interesting correlation between the Japan Nikkei index and Japan's Itraxx 5 year CDS since the beginning of March. The index had been falling whereas at the same time, Japan's Itraxx CDS had been rising. The bottom graph indicates so far a fairly muted volatility for the Nikkei index:
From the below, and following a similar exercise / analysis, we can find a similar relationship with credit, namely a high correlation in spot prices but not in volatility.
CDX Japan / TOPIX:
CDX Japan / 12 months ATM TOPIX Volatility:
Japanese Sovereign CDS 5 year evolution since 2004 - source Bloomberg:
The Japanese fight against deflation goes on...
On a final note in the latest spat between China and Japan, trade wise, China looks to have the upper hand:
"Every government has as much of a duty to avoid war as a ship's captain has to avoid a shipwreck." - Guy de Maupassant