- The USD/JPY pulled back a bit again during the trading session on Thursday as we tested the ¥145 region.
- This is an area that will more likely than not continue to cause a little bit of support, especially as the 50-Day EMA sits just below it.
- With that being the case, I like the idea of buying this market on the steps, as there has been a substantial amount of upward pressure for quite some time.
Keep in mind that the Bank of Japan continues to do yield curve control, meaning that they are buying unlimited bonds to keep the interest rate on the 10-year note down to 0.25%, which is tantamount to printing yen. In other words, the market is flooded with Japanese currency, and at the time there is a bit of a shortage of US dollars. This does not necessarily mean that we go straight up in the air, and quite frankly the Bank of Japan has been very active in the currency markets to try to stem the rising tide of yen depreciation. However, that is a lost cause, because if they continue to manipulate the bond market, there’s absolutely no chance of the Japanese Yen major strengthening move in it.
Federal Reserve Hawkishness Favors the Dollar
Having said that, the Federal Reserve stepping away from aggressively tightening could be a bit of a Savior for the Japanese yen. A lot of traders out there starting to speculate that perhaps the Fed won’t tighten as much as they once thought it would, because the Bank of Canada and the Reserve Bank of Australia have both raised rates less than anticipated. However, it’s worth noting that on Thursday the European Central Bank did in fact raise interest rates to 2% as anticipated.
In other words, the Europeans have not seen a need to slow down, so it’ll be interesting to see what the Fed has to say next Wednesday. In fact, I suspect that between now and then, this pair is probably somewhat listless, as we wait to see what the language is going to be out of that meeting. If the Federal Reserve remains hawkish, I will anticipate that the uptrend would continue in this market, and we would go looking toward the ¥150 level again.
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