- The USD/JPY has fallen hard during the trading session on Thursday as we continue to see the greenback get beaten up.
- The Japanese yen is strengthening due to falling yields, which makes sense considering that the main reason the Japanese yen has lost so much strength has been that the Bank of Japan has been involved in what is known as yield curve control, which is when a central bank buys bonds to keep rates low.
- If they were willing to buy “unlimited bonds”, using “unlimited yen”, it makes sense that the currency would lose value.
On the other hand, if rates around the world continue to drop, that puts a lot less pressure on the Bank of Japan, and therefore it does make a certain amount of sense that we would see the US dollar lose a bit of strength against the yen, as well as multiple other currencies which has been the case during the day.
Pair Could Recover
From a technical analysis standpoint, it’s probably worth noting that the 200-Day EMA sits just below. This is particularly interesting since Friday is also the Non-Farm Payroll numbers, and therefore a lot of people will be paying attention to the employment situation in the United States to determine whether the interest rate markets will go higher or lower. If interest rates start dropping again, that will put further downward pressure on this market. That would be in the instance that employment numbers are starting to disappoint, which is a metric that the Federal Reserve will obviously pay close attention to.
On the other hand, if jobs numbers come in hotter than anticipated, then it’s possible that this pair could recover. Currently, the expected number of jobs added for last month in the United States is 200,000, so pay close attention to them. Ultimately, the worse the number is, the worse this pair will perform, and of course vice versa. Ultimately, this is a market that I think could give us a bit of a “heads up” as to how the US dollar is going to do overall as it is extraordinarily sensitive to the jobs number and of course the interest rate differential between the 2 currencies. With this, caution is the better part of valor.
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