- The USD/JPY currency pair has spiked again during the trading session on Friday as the Bank of Japan continues to work against interest rates.
- Kuroda has stated twice this week that he was going to continue the same monetary policy, fighting rising interest rates.
- Japan has an insane amount of debt to GDP right now, something that can never be paid back at reasonable rates.
- Bank of Japan has determined that the 10 year note should only pay roughly 0.25%.
Bank of Japan fighting rising interest rates
The only way they can do that is to continue to buy unlimited bonds, which is the same thing is flooding the market with Japanese yen. In that scenario, the Japanese yen loses its attractiveness, but at the same time we have the US dollar strengthening due to the fact that there is a major US dollar shortage around the world, and the Federal Reserve is tightening monetary policy at the same time. In fact, this is essentially the “perfect set up” from a fundamental analysis standpoint.
The size of the candlestick for the trading session on Friday is rather impressive, and it’s worth noting that we have broken well above the ¥148 level. I have a target of ¥150, but we may get there much quicker than I had originally anticipated. The one thing that I would say about the market is that every time it pulls back, you should be looking at it through the prism of buying value. The ¥145 level should be significant support, as it was previous resistance. “Market memory” comes into the picture and therefore I think the ¥145 level will be definitive. Even if we break down below there, the ¥142.50 level comes into the picture as well.
The only way this market turns around as if that Bank of Japan finally lets interest rates rise the way they should against the 10 year JGB, or if the Federal Reserve decides it is going to change its overall monetary policy. Neither of those looks to be likely at this point, and therefore I think you got a situation where we continue to go higher but you should always be cognizant of the fact that the Bank of Japan has intervened when things got a little too aggressive in the past.
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