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Bank of Japan sitting on the fence on easy policy exitCentral banks packed quite a punch last week. Unlike the Federal Reserve and the European Central Bank that raised policy rates by 25Bps, as was widely anticipated, the Bank of Japan (BOJ) on July 28 unexpectedly decided to tweak the Yield Curve Control (YCC) band. The BOJ begins its withdrawal from YCC It will now allow some deviation above the long-term rate cap of 0.5% and has raised the rate for its 10yr Japanese Government Bond (JGB) fixed-rate purchase operations to 1%. They are effectively doubling their YCC band as it has outlived its purpose over the last seven years. This is despite Governor Kazuo Ueda stressing the BOJs patience a week prior to the meeting leading to 82% of the economists surveyed by Bloomberg expecting no change. There is a strong likelihood the decision was made because the market was least expecting it, similar to the last YCC policy tweak made in December 2022. As it helps avoid the inevitable speculation about the impact of the change on the JGB curve thereby forcing the BOJ to step up its interventions. It’s hard to determine whether the new YCC with greater flexibility and nimble responses in its purchase schedule will achieve the BOJs goal of sustainable and stable achievement of the 2% inflation target. Longer dated JGB yields are likely to stay under upward pressure until clearer signs emerge that Japanese inflation and wage pressure are easing again. Core inflation at highest level since 1982 The deflationary headwinds confronting Japan have been around for decades. Signs of change have been seen in firms’ wage- and price-setting behaviour, and inflation expectations have shown some upward movements again (as seen in the chart above). Spring in Japan is the season for shunto, the annual wage negotiations between company management and unions. This year some firms have already announced significant wage hikes in response to a tightening labour market and rising inflation. May wages rose by 2.9%1. However, a large part of the increase was tied to bonuses. Real wages fell by less but continued to decline by 0.9%2. Japanese headline inflation stayed at 3.2% year on year in July for three consecutive months3. However, core inflation excluding fresh food and energy, reaccelerated to 4.2%, marking the highest level since April 1982. Looking ahead, headline inflation will likely slow owing to falling global commodity prices and base effects but core inflation will likely remain higher owing to structural change in the labour market. BOJ struck a dovish tone with below target inflation forecasts The BOJ’s inflation forecasts for the fiscal years ahead are expected to slow further. The BoJ lowered its (median) forecast for FY2024 to +1.9%4 and left its FY2025 projection unchanged at +1.6%3, in effect justifying ongoing easing from the Bank of Japan. BoJ Governor Ueda mentioned at the press conference that there is still some distance to foresee 2% price stability target in a stable and sustainable manner given our inflation outlook for FY2024 and FY2025. This echoes a dovish narrative on the new YCC regime and a continued communication that the BOJ intends to in effect ease policy by still increasing the monetary base via fixed operations. More volatility beckons for risk assets The initial response to the BOJs surprise decision was a sharp rise in Japanese bond yields. Japan’s benchmark bond yields surged, extending gains above the central bank’s previous 0.5% cap. The yen whipsawed, falling more than 1% before reversing course and rallying to trade about the same amount higher. On Monday 31st July, the BOJ sprung another surprise announcement (2 days post the BOJ meeting) of an unscheduled bond-purchase operation to stem the rise in yields5. The BOJ intends to purchase ¥300Bn of five-to-10-year notes at market yields. This serves as an important reminder that the flexibility is intertwined with opaqueness, as the BOJ can intervene at any time (between 0.5% to 1%) which will continue to stoke volatility across risk assets. The BOJ has positioned the YCC as enhancing sustainability of its current accommodative policy. With Japan’s monetary environment likely to be kept relatively loose, the yen is likely to trade in a volatile range for the remainder of 2023. Sources 1 Bloomberg as of 31 May 2023 2 Bloomberg 31 May 2023 3 Ministry of Internal Affairs and Communication as of 20 July 2023 4 Bank of Japan as of 28 July 2023 5 Bloomberg as of 31 July 2023 This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
FRED:NIKKEI225
by aneekaguptaWTE
USDJPY: Your Trading Plan For Next Week 🇺🇸🇯🇵 USDJPY is trading in a bullish trend. The price recently started a correctional movement and dropped to a major rising trend line. A big double bottom was formed on that. To buy the market with a confirmation, wait for a bullish breakout of its horizontal neckline. IF the market breaks and closes above 142.0 level, I will expect a bullish continuation at least to 144.7 level. ❤️Please, support my work with like, thank you!❤️
Long
by VasilyTrader
6
GBPJPY short on the horizon Given the chart pattern and overextended nature of this pair I’ll be looking to short this cross if the pound continues to gain in strength. A short entry on this pair will be taken with considerable caution due to the divergence in monetary policies. That being said, given the UK’s lacklustre economy I think further rate rises, although needed, will be increasingly unpalatable for the BoE and so any sustainable strength in the pound may be unlikely in the weeks to come. On the 1d, I’ll be looking to see future divergences between the price and the indicators, which I’m not currently seeing. The delta is fast approaching a resistance zone if the price continues to rise. All of these points will likely converge if the price hits my point of interest 175 - 176 (green zone).
Short
by jamesfrench73
63
MarketBreakdown | Dollar Index, USDCAD, US30 Index, GBPJPY Here are the updates & outlook for multiple instruments in my watchlist. 1️⃣ Dollar Index (DXY) daily time frame 💲 After a test of a key daily structure resistance, we see a positive bearish reaction from that. It looks like the Index will keep retracing to lower levels. 2️⃣USDCAD daily time frame 🇺🇸🇨🇦 The market is currently approaching the neckline of an ascending triangle formation. Following the local weakness of a greenback, the pair may drop one more time from the underline horizontal line to a rising trend lien. 3️⃣ US30 Index weekly time frame The index reached a key weekly structure resistance. Strong rejection on a daily time frame signifies a local overbought state of the market. I will expect a pullback from the underlined level. 4️⃣ GBPJPY daily time frame 🇬🇧 🇯🇵 The pair successfully violated a key daily horizontal structure support. The broken structure turned into a resistance now. The market will most likely keep falling to lower levels soon. Do you agree with my market breakdown? ❤️Please, support my work with like, thank you!❤️
Short
by VasilyTrader
3
✨ MODIFICATION: USDJPY ✨ SWING TRADE (1D/3H) ✨00:00 Swing vs Position Trades 01:45 Supply / Resistance 02:36 Entries and Targets 04:16 Intermediate vs High Time Frame 05:43 Demand Zone (3H) 07:42 Day Trade Opportunities 10:37 Boost, Follow, Comment, Join MAJOR RESISTANCE @ 149.00 -SL @ 147.60 🚫 SLO2 @ 146.60 (conservative) ⏳ SLO1 @ 145.15 (aggressive) ⏳ SSO1 @ 143.10 (aggressive) ⏳*** SSO2 @ 142.95 (moderate) ⏳ SSO3 @ 142.70 (conservative) ⏳ TP1 @ 142.25 (2D) (shaving 25%) TP2 @ 139.00 (3H) (shaving 25%) TP3 @ 135.75 (2D) (shaving 25%) TP4 @ 131.50 (12M) (closing ALL Sell Orders) MAJOR SUPPORT @ 130.50 BLO1 @ 129.15 (1D) ⏳ BLO2 @ 128.15 (1D) ⏳ -SL @ 126.75 🚫 ***PLEASE NOTE: SSO2 and SSO3 are NOT annotated on the chart, but are listed here as alternative Sell Stop Orders WE ARE A COMMUNITY BOOST a trade idea to share with others and "pay it forward" FOLLOW to receive alerts of any new posted ideas COMMENT with questions, insight, and expertise JOIN our group chat: receive free analyses on any instrument
Short
by ProfessorCEWard
🔥 MODIFICATION: CHFJPY 🔥 POSITION TRADE 🔥Being that Price Action (PA) continues to go long, please manage your trades as we take the risk of shorting it from here. SSO1 @ 158.50 ⏳ SSO2 @ 152.60 ⏳ TP1 @ 141.33 (shaving 25%) TP2 @ 131.85 (shaving 25%) TP3 @ 124.90 (shaving 25%) TP4 @ 114.15 (closing ALL Sell Orders) BLO1 @ 111.55 ⏳ BLO2 @ 105.25 ⏳ WE ARE A COMMUNITY BOOST a trade idea to share with others and "pay it forward" FOLLOW to receive alerts of any new posted ideas COMMENT with questions, insight, and expertise JOIN our group chat: receive free analyses on any instrument
Short
by ProfessorCEWard
1
JPY Basket (FXCM) - LONGWhile I am not a die-hard fan of FXCM's Yen Basket (much prefer NAFTA + Japan vs. "the World"), this index/basket is clearly working on an turn here. It is still relatively week but has likely put the worst behind it. Now, it is all about acceleration which, judging from past behavior, ought to gain significant momentum. Again, I'd suggest to use this "basket" as an indicator rather than trading it outright - which is also possible. (Work in progress on a properly weighted NAFTA + Japan Index.)
FX:JPYBASKETLong
by Nemo_Confidat
USD/JPY: The case for a bearish reversal buildsUSD/JPY has delivered a decent trend for bulls so far this year, having risen 14% since the January low. Yet we have been fully aware that net-short exposure to yen futures has approached a historical extreme as USD/JPT prices rose towards 145. Incidentally, 145 was the upper range of the liquidity gap we mentioned in a previous article which has now been filled, and USD/JPY has printed a bearish engulfing week at the 145 handle. With risks of yen intervention very real and traders positioned so strongly to the short side of yen futures, we suspect USD/JPY is at or very near an important inflection point. What could make the difference between a natural pullback against the YTD trend or a sharp reversal could be incoming economic data from the US and Japan. A softer-than-expected CPI report for the US could likely help push USD/JPY lower, but the real bearish catalyst could be if the BOJ finally get serious about abandoning their YCC (yield curve control). Over the near-term, a move to the 140 and 138 handles seem achievable over the coming weeks as part of a much-deserved retracement against a one-sided trend so far this year.
Short
by CityIndex
DXY does the job for the BoJOver the last couple of weeks, the USDJPY retraced strongly from the 145 price level to the 137.20 price area. As the USDJPY reached the 145 price level, there was significant speculation about whether the BoJ was going to intervene. However, it was the weakness in the DXY that brought the USDJPY lower. Although the USDJPY, the price failed to break above 23.60% Fibonacci retracement level while also forming a pinbar rejecting the 139 price level. Look for the USDJPY to break below the 137.70 support level to signal a continuation of the downtrend with the next key support level at 135.66 which was last tested 16th May 2023.
Short
by JinDao_Tai