For What Its Worth BOJ is Ready to Go Next Week

Yesterday,  Japan’s Prime Minister Abe announced an additional fiscal package worth JPY 430.8bln.  This is in addition to the fiscal actions already take by the administration.  It is estimated Japan will need JPY 10tln-JPY 20tln to fight the coronavirus.  On the other hand,  The Bank of Japan (BOJ) have been speaking endlessly about the numerous tools they have to provide more stimulus into the economy.  They also have been talking about how they are “monitoring fx movements”.  In the old days,  the BOJ would intervene in the fx markets and run USD/JPY up 2 big figures to take pressure off the rising yen. However, traders began to catch on to this trick, and would begin selling yen pairs as soon as the BOJ was done buying.  In a few days, USD/JPY would be lower than where it was when the BOJ started selling yen!!  Today BOJ members just talk.  For most Central Banks, speaking can be a powerful tool to guide the markets as to where monetary policy may be headed next.  Not in Japan. 

The BOJ is set to meet next week at their regularly scheduled interest rate meeting.  Earlier today, the BOJ said they are “likely to ease monetary policy next week to prevent market volatility from affecting business sentiment; more ETF buying seen as among the likely options” (Sources).  This is equivalent to pouring a glass of water into the ocean.  It really doesn’t matter what the BOJ says or does,  the trading community has little faith in them.

The Japanese Yen has always been considered a “flight to safety”.  Why?  Because markets have become aware that the BOJ is always there to bail them in, in worst case scenario.  (I must mention here that the FED and the ECB don’t seem to far behind over the last 10 years).  In the 15-minute bar, when the BOJ “talk” was released on the wires, USD/JPY briefly traded from 104.70 to 105.00.  Sellers took advantage of the bounce to sell. And the bar closed at 104.57.  30 minutes later, price was 20 pips lower near 104.37. 

Source: Tradingview, City Index

Astute traders who want to try to find direction for the USD/JPY will watch the US 10-Year Yields.  Notice the correlation coefficient at the bottom of the chart.  The correlation coefficient is +0.85.  A correlation of +1.00 means that the 2 instruments more perfectly with each other on a 1 to 1 basis.  +0.85 means that 85% of the time they move together. 

Source: Tradingview, City Index

USD/JPY has been in a downtrend since mid-February, and yesterday filled that gap from over the weekend.  In doing so, price has created a rising wedge and is currently moving outside the wedge.  Initial resistance is the bottom line of the wedge near 105.30.  Resistance above there is the downward sloping trendline from mid-February near 106.70. (There is horizontal resistance there as well.  Horizontal support comes across that the top of the hammer bottom near 102.60, and again at Sunday night’s (Monday’s trading session) lows near 101.18. 

Although the BOJ is ready to provide more stimulus at the next BOJ meeting, it’s not likely to have much of an affect on the yen.  A “Whatever It Takes” comment will probably not even help!  Watching the US 10-year yield will help give traders a better sense of where USD/JPY is headed next.

Yesterday,  Japan’s Prime Minister Abe announced an additional fiscal package worth JPY 430.8bln.  This is in addition to the fiscal actions already take by the administration.  It is estimated Japan will need JPY 10tln-JPY 20tln to fight the coronavirus.  On the other hand,  The Bank of Japan (BOJ) have been speaking endlessly about the numerous tools they have to provide more stimulus into the economy.  They also have been talking about how they are “monitoring fx movements”.  In the old days,  the BOJ would intervene in the fx markets and run USD/JPY up 2 big figures to take pressure off the rising yen. However, traders began to catch on to this trick, and would begin selling yen pairs as soon as the BOJ was done buying.  In a few days, USD/JPY would be lower than where it was when the BOJ started selling yen!!  Today BOJ members just talk.  For most Central Banks, speaking can be a powerful tool to guide the markets as to where monetary policy may be headed next.  Not in Japan. 

The BOJ is set to meet next week at their regularly scheduled interest rate meeting.  Earlier today, the BOJ said they are “likely to ease monetary policy next week to prevent market volatility from affecting business sentiment; more ETF buying seen as among the likely options” (Sources).  This is equivalent to pouring a glass of water into the ocean.  It really doesn’t matter what the BOJ says or does,  the trading community has little faith in them.

The Japanese Yen has always been considered a “flight to safety”.  Why?  Because markets have become aware that the BOJ is always there to bail them in, in worst case scenario.  (I must mention here that the FED and the ECB don’t seem to far behind over the last 10 years).  In the 15-minute bar, when the BOJ “talk” was released on the wires, USD/JPY briefly traded from 104.70 to 105.00.  Sellers took advantage of the bounce to sell. And the bar closed at 104.57.  30 minutes later, price was 20 pips lower near 104.37. 

Source: Tradingview, FOREX.com

Astute traders who want to try to find direction for the USD/JPY will watch the US 10-Year Yields.  Notice the correlation coefficient at the bottom of the chart.  The correlation coefficient is +0.85.  A correlation of +1.00 means that the 2 instruments more perfectly with each other on a 1 to 1 basis.  +0.85 means that 85% of the time they move together. 

Source: Tradingview, FOREX.com

USD/JPY has been in a downtrend since mid-February, and yesterday filled that gap from over the weekend.  In doing so, price has created a rising wedge and is currently moving outside the wedge.  Initial resistance is the bottom line of the wedge near 105.30.  Resistance above there is the downward sloping trendline from mid-February near 106.70. (There is horizontal resistance there as well.  Horizontal support comes across that the top of the hammer bottom near 102.60, and again at Sunday night’s (Monday’s trading session) lows near 101.18. 

Although the BOJ is ready to provide more stimulus at the next BOJ meeting, it’s not likely to have much of an affect on the yen.  A “Whatever It Takes” comment will probably not even help!  Watching the US 10-year yield will help give traders a better sense of where USD/JPY is headed next.