The USD/JPY has had a back-and-forth session during the day on Tuesday as we continue to mess about the area just below the ¥130 level. It is important to pay attention to the Bank of Japan overnight as they will have a monetary policy statement.
The entire world is watching
We have to worry about the decisions that they will be making when it comes to monetary policy as the bond markets have been a major driver of what’s going on. After all, the Bank of Japan has put a bit of the lid on the 10 year yield at 50 basis points. However, the market has been doing everything it can to break above there. In fact, it’s been somewhat successful.
If the Bank of Japan goes ahead and acquiesces, letting interest rates rise a bit, that will more likely than not send the Japanese yen soaring, and this pair much lower. If we break down below the ¥127 level, that will open up a huge air pocket that could send the Japanese yen all the way back down to the ¥115 level over the longer term. On the other hand, if they stand pat and do everything they can to keep interest rates down in buying “unlimited bonds”, it’s possible that this pair could break above the ¥130 level, and then go looking to the ¥132 level. Breaking above that would obviously be very bullish.
- It is time to to let the Bank of Japan get out of the way and decide what they are going to do.
- This will give us an idea as to whether the market is going to float freely, or if it is going to continue being manipulated like it had been last year.
- I think we are on the precipice of a huge move in one direction or the other, so I will be revisiting this tomorrow, with great interest.
We are getting ready to form the so-called “death cross”, but the Bank of Japan is much more important than a couple of silly moving averages at this point. We are very bearish but could turn right back around if the announcement shocks the market.
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