The Japanese Yen has soared in recent weeks, as optimism surrounding the BoJ Shift has lifted the currency to a new all-time high. But the long-term outlook for the Yen looks dim, as the technical indicators on the currency remain bearish. This week, we examine the current state of the yen, as well as the broader global economic outlook and its impact on the Japanese Yen.
World stocks scale one-month highs
The Japanese yen has been in a strong position for the past two months and is now close to its strongest levels in months. This has led to speculations about a possible policy shift, especially in light of the Fed’s recent announcement.
A look at the USD/JPY pair hasn’t been all that awe inspiring since the FOMC meeting is less than three weeks away. While a number of analysts are expecting the Federal Reserve to lift its benchmark interest rate by 25 basis points, this is not the end of the story. Although the US is currently in the midst of a recession, there are some signs that the economy is beginning to pick up steam. In addition, the central bank announced additional bond purchases, which should keep yields in check.
Japan’s economy has given few if any reasons for an exchange rate recovery of late
Japan’s economy is facing many problems. It has been stuck in a prolonged stagnation for the past two decades. The country has also suffered from persistent deflation.
There is no magic wand to reverse the trend. Instead, the country must make structural changes to revive its economy. Abe has begun a three-pronged approach combining fiscal expansion, monetary easing, and structural reform. However, most economists are skeptical about these measures.
The first goal of Abe’s strategy is to boost GDP growth. He wants to do this by expanding trade partnerships and reforming the labor market. His plans are expected to help the economy revive, but they could end up adding to the nation’s debt.
In addition, monetary easing could help reverse deep-seated deflation. But, it is also possible that these measures could lead to hyperinflation. This is because the financial system in Japan is weakened.
Bank of Japan raises ceiling on long-term Japanese yields
The Bank of Japan shocked the financial markets on December 20 when it raised the ceiling on long-term Japanese bond yields. This move has set the market abuzz with speculation about what’s next.
It’s a move that could be the first step toward normalizing monetary policy under a new governor. But it comes with a price: a steep jump in the yen.
According to FactSet currency data, the yen’s gain was its biggest since March 1995. Yen traders speculated that the BOJ would raise its yield if the yen fell significantly.
As a result, the 10-year Japanese government bond’s yield shot up 21 basis points, reaching 0.467 percent. In the meantime, the US Treasury yield rose 7 basis points to 3.66%.
Bank of Japan conducts brief survey on the use of JPY LIBOR
The Bank of Japan (BOJ) has carried out a brief survey on the use of JPY LIBOR. It is widely perceived as a precursor to physical intervention in the foreign exchange market. Since the mid-1990s, the Japanese yen has been weakened due to widening rate differentials between it and other currencies.
LIBOR is a widely used benchmark for short-term interest rates. It is based on a standardized, transaction-based methodology. This means that the rate is calculated using data from a broad variety of financial transactions. Despite its widespread use, there have been methodological criticisms.
Panel bank sterling LIBOR is referenced in about US$265 trillion of contracts. Its origins date back to the 1960s. From late 2021, panel bank sterling LIBOR will cease use. However, the remaining five US dollar LIBOR settings will continue to be calculated using panel bank submissions until mid-2023.
Technical moving averages are exhibiting extremely bearish signals
One of the most common signals in technical analysis is the moving average crossover. This is the point where the shorter MA crosses the longer one. The resulting divergence indicates that the direction of the trend is changing. A bearish signal is triggered when the shorter one crosses below the longer one.
However, no moving average can tell you exactly what will happen in the future. The moving average is best used to identify levels of resistance and support. They provide a smoother price action and filter out noise from random price fluctuations.
There are a number of different formulas used to calculate moving averages. Some are better suited for finding support and resistance zones than others. The ideal moving average will have minimal lag when price begins trending.