Kuroda Jolts Yen Bulls
Today’s Spotlight Market
Japanese Yen futures took a sharp nosedive last week after the Bank of Japan announced a negative interest rate strategy on Friday.? This aggressive action from the BOJ took many traders by surprise, as much of the spec position was tilting toward the long side of the market.? BOJ Governor Haruhiko Kuroda has gone to great lengths to stimulate the Japanese economy since taking over the central bank in 2013.? Kuroda has swollen up the central bank?s balance sheet to three-quarters the size of Japan?s economy with aggressive quantitative easing and is now pushing banks to lend more.
Fundamentals
The negative interest rate policy should not be a surprise to traders, although its announcement on Friday certainly seemed to burn the bull camp.? Japan has been suffering from slow growth and excessive savings for several decades now.? The Yen had been a favorite of defensive minded currency traders looking to diversify away from US Dollars.? Kuroda has tried to right the wrongs of the Shinzo Abe government, which helped send the nation into recession with its 2014 tax increase.? The BOJ is attempting to fight off the threat of deflation with aggressive policy.? Exports have been underperforming, business investment is extremely low, and consumer spending has been extremely soft.? The negative interest policy is attempting to right two of those wrongs by giving consumers a disincentive to save and giving banks a reason to lend to businesses.? The BOJ is under pressure to get the economy healthy again before a planned increase in the nation?s sales tax kicks in next year.? Despite the seemingly large impact of the negative interest rate policy, the negative impact on the Yen may have been overstated.? Quantitative easing and aggressive monetary policy had already been factored into the exchange rate for the currency.? The move can be seen as limiting the upside of the Yen rather than having a long-term negative impact.
Technical Notes? -? View Today’s Chart
Turning to the chart, we see the March Japanese Yen futures contract selling off sharply on Friday.? The market had confirmed a small double top last week, indicating a potential near-term reversal.? Prices broke through near-term support at 0.8445, which can now be seen as the nearest resistance level.? The closes below the 20-day moving average would suggest that a near-term high may be in place.? It is of interest to note that the RSI indicator had peaked prior to the sell-off, which can be seen as bearish in the mid-term.
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