- The USD/JPY has rallied during the trading session again on Thursday as we continue to threaten the psychologically important ¥150 level.
- Keep in mind that there is a lot of psychological noise here, but at the end of the day, it’s just a number.
- Most of what the Bank of Japan is worried about is the rate of acceleration, not necessarily the actual big figure itself.
Having said that, traders do tend to pay attention to these large numbers, so do not be surprised to see if we get a little bit of a pull back sooner rather than later. However, I also think that the market is one that you cannot short. The 50-Day EMA is 600 points below where we are right now, so the pullback could be rather steep, but still only be just a pullback. The Federal Reserve continues to tighten monetary policy, and that is the most important thing to pay attention to. The interest rates in America continue to climb, and quite frankly if the Bank of Japan continues to fight interest rates rising in that country, we are going to see more weakness of the Japanese yen.
Greenback Likely to Keep Gaining Ground
The biggest issue in this pair to remember is that the Bank of Japan is doing quantitative easing while almost everybody else is going in the other direction. This is especially true the Federal Reserve which some people are even starting to call for 100 basis points of rate hiking at the next meeting. Simultaneously, as the Japanese by “unlimited bonds”, that’s the same thing is printing unlimited currency. In other words, it’s a situation where it makes a lot of sense that Japanese yen being flooded into the system make them worth less.
At the same time, the United States dollar is highly sought after for safety, and the fact that a lot of debts around the world are priced in US dollars, so there is a huge demand for them. As monetary policy continues to get tight, that means the market will continue to favor the greenback, regardless of anything else, with the exception of the occasional noisy move. When it comes to this pair, I’m looking for some type of significant pullback to start buying, but I do recognize we may not get it anytime soon.
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