Reports coming out of Tokyo say that the Bank of Japan could announce more stimulus next week. This fresh monetary boost would come in the form similar to the ECB’s TLTROs. This means lending money to banks on the condition that they lend it out to the real economy. With negative interest rates, as in Europe, it would mean paying the banks for this.
Perhaps this is what the yen needed to make the extended sell off: USD/PY shot 100 pips to the upside, finally breaking back above 110 and reaching a high of 110.46 so far. Resistance awaits at 111. Update: the move extends another 20 pips to the upside.
Negative rates are in play since February. At the time, this sent USD/JPY all the way to 121.50 only for the pair to crash a few days later with markets defying the Bank of Japan.
The Bank of Japan convenes next week on concludes its meeting early on Thursday, April 28th. This comes only hours after the Fed makes its own decision.
More: Long USD/JPY; BoJ Has No Choice But To ‘Double Down’ – Goldman Sachs
BOJ governor Kuroda is celebrating a third year at the helm of the institution this month. He introduced a very ambitious program upon entering office, called QQE. This weakened the yen and so did a second bout in October 2014.
Japan would like to see a weaker yen and this becomes even easier when oil prices, which Japan imports, are at low levels. However, intervention from the world’s third largest economy to weaken its currency has seen a lot of criticism from the US and could spark a currency war with China, Japan’s big neighbor and the second largest economy in the globe.Get the 5 most predictable currency pairs