- The USD/JPY took off during the trading session on Wednesday as Kuroda reiterated the Bank of Japan’s desire to keep interest rates down.
- In other words, they are going to continue buying unlimited bonds, essentially printing unlimited yen.
- While the Bank of Japan did try to spook the market and slow things down, by making that statement, he has given the green light for buyers step in and start buying again.
On short-term debts, I believe that the ¥145 level offers support, as it was the previous high. A little bit of “market memory” could come into the picture at that point, as one would expect. Even if we break down below there, the ¥142.50 level should be targeted, perhaps even the 50-Day EMA. Regardless, the US dollar is on a tear, and it looks like it’s ready to continue going higher.
Waiting for the CPI Numbers
The Japanese yen is going to continue to get hammered, because the biggest problem that the Bank of Japan has is that interest rates are going higher around the world, and the Japanese are buried up to their necks in debt. For years, Japan has been a bug looking for a windshield, and it looks like we may have found it finally.
There are only 2 things that could change the overall attitude of this market. The first one would be that the Bank of Japan finally let bond yields rise, which is what the natural forces of the market are demanding. If that were to happen, then the Japanese yen would become much more valuable. The other one would be that the Federal Reserve sees no need to continue tightening, and therefore the US dollar would calm down and release some of the pressure that it is currently put on every other currency. At this juncture, it’s much more likely that the Bank of Japan will have to change its policy before the Federal Reserve will acquiesce on theirs. After all, the Federal Reserve has to deal with extraordinarily high inflation, and during the earlier part of the session on Wednesday, the Producers Price Index came out at 0.4% month over month as opposed to the 0.2 reading that was expected. Thursday features the Consumer Price Index, which is just as important, and if it follows the PPI reading, the US dollar could spike yet again.
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