Whether or not this keeps the marker from going higher is a completely different question, but the reality is that the intervention typically is a short-term fix, just simply used to slow down the market.
The USD/JPY has been all over the place during trading on Thursday, as the Bank of Japan jumped into the market and intervene. It appears that the Japanese have lost their sense of humor when it comes to the recent one-way trade, and therefore I think it does make a lot of sense that they got involved at the ¥145 level.
In fact, it is worth noting that the ¥145 level has been very difficult to get above, and once we did spike above there during the early hours on Thursday, the turnaround was swift and brutal. Whether or not this keeps the marker from going higher is a completely different question, but the reality is that the intervention typically is a short-term fix, just simply used to slow down the market. If the interest rate differential remains so wide between the United States and Japan, it does make a lot of sense that the US dollar continues to climb.
Interest Rates Differential Favor the Dollar
- Furthermore, the Bank of Japan is the whole reason this is going on in the first place. After all, they are fighting rising rates, meaning they are doing what is known as quantitative easing.
- They are buying “unlimited 10-year bonds” which is the same thing as printing currency.
- If you are going to print the currency, you are going to see it lose value.
- This is especially true considering that there are a lot of concerns about liquidity out there right now, meaning that people are looking for US dollars and are struggling to find them.
The candlestick shows just how hard we bounced from the ¥140 level, and therefore I think it shows that we are probably going to see more consolidation than anything else in the near term. If we can break above the top of the candlestick, then we are more likely than not going to go looking towards the ¥147.50 level, maybe even the ¥150 level. It will also increase the possibility of the Bank of Japan getting involved and causing headaches as well. In other words, this is going to become a much more dangerous currency pair in the short-term, but eventually the interest rate differential will overwhelm the Bank of Japan, at least until they give up the idea of suppressing rates.