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Japanese yen still the main mover so far today

The dollar is mostly steady as major currencies aren’t showing much appetite in European trading so far. That is within reason considering that market players are all eyeing the US CPI data later today before firming up any convictions. But the yen is a notable mover, with USD/JPY being down 1% on the day now to 131.00 as speculative bets mount on the currency ahead of the BOJ policy meeting next week.

This comes after the earlier report here, suggesting that policymakers are set to review the side effects of its easy policy.

The timing of the report makes it tricky to navigate through the pair, as the bond market, dollar and risk sentiment will also factor into play once markets get to the inflation numbers later today. But that won’t be the end of it for USD/JPY, as traders will also then have to consider BOJ risks going into next week.

This feels a bit like a litmus test for the yen and it seems like traders are slowly erring towards the BOJ potentially signaling more intent to move away from its current policy stance.

When you take a look at the Japanese bond market, the supposed dysfunction that the central bank wanted to correct in December arguably hasn’t gotten any better. 10-year yields are pinned at the limit of 0.50% since the end of last week and the BOJ has had to keep stepping in with unlimited bond buying (even at 2-year and 5-year bonds) to maintain order.

That said, this is not to say that the BOJ will surely deliver something for traders or yen bulls to get excited about next week. If anything else, I reckon it could be the other way around where the central bank would disappoint those hoping for them to take further steps away from its current easy policy stance.

However, in the bigger picture, that will very much just be a light setback as there have been plenty of developments suggesting that Japan is slowly pivoting towards a fight against inflation. The trade here to me is not to bank on a sudden major change by the BOJ but instead keep patient as the cog wheels start to turn.

In the case of USD/JPY , the more immediate picture sees key technical support and resistance defined by 130.00 and 134.50 to 135.00 respectively:

It will require a break on either side to really set off any extensive moves in the pair next.

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