?Fundamentals
An announcement by the Bank of Japan (BOJ) of implementing even more aggressive stimulus measures with the goal of raising annual inflation levels to 2% spurred widespread selling in the Japanese Yen by traders, as the policy measures announced were more aggressive than anticipated. Among the initiatives announced by new BOJ governor Haruhiko Kuroda were increased purchases of assets like stocks and ETF’s, an increase of the amounts of bonds purchased to 7.5 trillion Yen per month, which is up from 3.8 trillion, aand an extension of the duration of Bond purchases up to maturities as long as 40 years. Traders rushed into the Japanese markets after the announcement, rallying the Nikkei 225 futures over 600 points, sending Japanese Government Bonds (JGB) futures up over 1-full point, and weakening Yen futures by nearly 400 pips. Though the initial market reaction seemed to confirm the BOJ’s intentions to stimulate growth, the longer-term results are more uncertain, with some economists fearing that these aggressive policies could spur asset price bubbles, which could in turn end up doing more harm to the economy when they burst. However, it seems doubtful that this concern was front and center in bank officials’ minds in their attempt to spur economic growth after nearly two decades of stagnation.
Technical Notes
Looking at the daily continuation chart for Japanese Yen futures, we notice how effective the BOJ’s policy announcement was in weakening the value of the Yen. The sell-off may have been especially pronounced, as it came during a period when the Yen was rallying against the U.S. Dollar after making multi-year lows. Prices have now fallen below the 20-day moving average, and momentum as measured by the 14-day RSI has turned weak, with a current reading of 37.32. Support is seen at the March 12th low of 1.0340, and a failure of this support area to hold may signal that a run to 1.0000 may be in the cards. Resistance is seen at the April 2nd high of 1.0809.
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