The Japanese Yen Having Cognitive Dissonance
The Japanese economy is slowing down and continued trade war between the US and China isn’t helping. Thus, the Bank of Japan will continue to purchase Japanese government bonds at $710 billion (USD) per year and decided to leave interest rates unchanged at -0.10% this week.
Japan’s central bank chief on Wednesday ruled out a near-term interest rate hike amid risks from global trade disputes, but also raised a firm warning about vulnerabilities in the financial system from years of loose monetary policy.
“It’s true there are downside risks to the outlook and most of them are driven by external factors. If such risks turn out to have a big impact on Japan’s economy, prices and markets, we will of course take monetary policy action,” Kuroda said.
But the BOJ issued a slightly stronger warning on financial vulnerabilities than it did three months ago, reflecting growing concerns that years of ultra-low rates were hurting bank profits and could discourage them from increasing lending.
Boy, there’s a lot going on in Japan, which ultimately will adversely affect the Japanese yen. But the Yen is also safe haven currency as well. Because Japan is such a large exporter, over many decades of account surpluses, it has become such a largest net creditor to the world. So during times of uncertain, capital flows out of other currencies and into the Japanese yen, causing it to strengthen.
So who’s winning the Yen tug-a-war currently, lets go to the charts to find out.
Monthly Chart (Curve Timeframe) – monthly supply is at 0.0102 and monthly demand at 0.0082.
Weekly Chart (Trend Timeframe) – what do you think is the trend?
I tend to use pivot highs and lowe, but sometimes a different tool is needed. When using a 50 simple moving average (red line) the pivot highs and lows are a bit more identifiable.
When using the 50 simple moving average and based on pivot highs and lows, the trend is up. However, if the most recent pivot low is breached, the trend will be sideways.
Daily Chart (Entry) – the chart suggests to go long if and once price reaches the daily demand at 0.0088.
The Fib retracement also gives this trade set-up some confluence as the 88% retracement is within the daily demand.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.
This will be the future for the US as well. It is amazing to see that Japan never recovered from their deflationary spiral from the 90s due to their demographics. As the US runs out of tools to inflate markets, we will run into similar issues down the road.
Yes, I'd been overlooking the effects of the baby boomers retiring here in the US these next 10 years, just as we hit the phase in the cycle of bubbles deflating in stocks, bonds and real estate. This is a confluence that may have more serious effects than anything I've seen in my lifetime. This isn't a normal recession coming. I wonder though if we can limp along like Japan for decades, and whether even Japan can.
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It will be interesting to see how things transpire, the question remains will the USD remain a safe haven in the future, like the Yen.
Very interesting, but such a true statement. In addition, one day the USD will no longer be the world reserve currency.