- The euro has pulled back a bit against the Japanese yen during the trading session on Wednesday, as the Bank of Japan started to jawbone the currency markets overnight.
- They suggested that they were watching currency movements very carefully, which is something that they say from time to time. Quite frankly, you cannot take the Bank of Japan seriously because they cannot fight that weight of the currency markets.
- That being said, there is a proclivity to react a bit to these announcements and statements, so this should not be a huge surprise that we have seen the market pullback.
Regardless, the Bank of Japan can do nothing from a longer-term standpoint. Quite frankly, the Japanese are so indebted to this point that even the 0.1% interest rate that they now have is probably stretching things. We are eventually going to see a major crisis in Japan, although that doesn’t necessarily need to be this moment in time. After all, you cannot have such loose monetary policy forever, and eventually the chickens come home to roost.
Buying dips
My trading strategy for this pair will be the same as every other yen related pair, I am just simply buying dips as the Japanese yen is in a bit of a death spiral. The best that the Japanese central bank can do right now is to simply slow down the destruction of its own currency. They have no real shot at changing the overall attitude, nor do they have the ability to change the overall trajectory anytime soon. For that to happen, they will need help from other central banks around the world, which is something that could happen, albeit slowly. All one has to do is look at the earthquake in Fukushima in Japan, which had multiple central banks come into pick up the value of the Japanese yen.
Anything beyond that type of extraordinary effort means that we will more likely than not see the Japanese yen continue to suffer over the longer-term, and I think given enough time we will see the euro travel above the ¥165 level to go looking toward a ¥170 level. Currently, the 50-Day EMA sits just below the ¥162 level, and that is my short-term floor in the market.
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