- The British pound has been all over the place against the Japanese yen during the course of the trading session on Thursday, as we continue to see the Japanese yen get punished.
- This makes a certain amount of sense, considering that the Bank of Japan simply has no real recourse when it comes to monetary policy at the moment due to the massive amounts of debt in the Japanese current account, and of course the fact that the government simply cannot help itself but spend more.
At this point, the Bank of Japan cannot raise interest rates, because if they did, they could absolutely decimated the Japanese economy. Quite frankly, Japan is a major disaster just waiting to happen, which makes a certain amount of sense considering that the demographics are completely falling apart. The Japanese are even starting to accept more foreigners, something that I never thought I would see in my lifetime. However, the question then becomes whether it is going to be “Too little, too late.”
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The Trend
The trend remains very much intact, and I don’t have any interest whatsoever in shorting this pair. There is a certain amount of chatter out there about the Bank of Japan possibly intervening, but that will only give me an opportunity to buy British pounds against Japanese Yen at a better price. The Bank of Japan can’t change what is going on around the world, and quite frankly it’s not until the Federal Reserve starts cutting, and in this case the Bank of England, that the Japanese yen has any real hope for survival.
The interest rate differential is wide enough to drive a truck through, and as long as that is going to be the case, I think it makes a lot of sense that you hold on to this pair, because you do get paid to be long of this market. Underneath, I see the ¥200 level is a massive support level just waiting to happen, as it was previous resistance, and therefore we should have a certain amount of “market memory” in that vicinity.
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