USD/JPY – Anatomy of the Crash

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A bank holiday in Japan did not help the Bank of Japan: the ultimate safe haven currency continues to rise and it’s easy to forget that the BOJ set historic negative rates less than a fortnight ago. The pair is feeling comfortable at the 112 handle.

Dollar/yen is basically back to the previous big BOJ decision: in late October 2014 Kuroda announced the second phase of the QQE program, basically pledging more bond buys and at a faster rate. That sent the pair shooting above 110 and crossing 120 quite quickly.

The fall in oil prices, worries about China, worries about individual stocks directly and indirectly related to energy stocks are all sending investors to the funding currency of choice. When the pair last fell and reached 116, the BOJ hinted of action. It resulted in a small rise in USD’JPY to around 118 and once they announced the negative interest rate, we had an immediate reaction all the way to 121.50.

However, the party at the BOJ headquarters was short: a “hangover”, fresh worries and a weakening of the US dollar across the board all sent the yen higher. When 116 was crossed for a second time, we heard about the BOJ “checking prices” – sending out rumors to push the price higher without intervention.

But with also the Federal Reserve joining the cautious stance and talk about oil being dumped on markets, we had a spectacular collapse. Analysts are already talking about 105. What can the BOJ do?

Perhaps they could act in March or when they publish the semi-annual forecasts in April. But what else can be done? Everybody has gone dovish.

Here is the daily chart of USD/JPY, going back all the way to the summer of 2014:

USDJPY February 2016 daily chart

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

3 Comments

  1. Shawn Sato-Veillon on

    So you think Japan wants to keep the 120-ish levels? I know they seemed to think it was good for the economy here (I’m in Japan) because it made the export sales rise. Bringing in foreign money is certainly good. But they just increased the negative interest rate and are basically showing propaganda on TV about people rushing to buy new homes and such to take advantage of the crazy rate. I don’t know that much about the economics involved, but since moving here, the exchange rate has made a big impact on my life because I get paid in USD. When we first moved here two years ago the rate was around 100:1. That seemed like a perfect matchup, and prices on things here seemed to be about the same as in the US. Maybe I wasn’t looking hard enough then – and just comparing commonly used things, utilities, etc. (we moved here from Los Angeles) Now it seems things are more expensive here than there, pretty much accross the board. But since I was basically making a 20% bonus on every paycheck, it still worked out to a net gain. My concern now is that prices here will still continue to rise because I hear BOJ wants to increase the inflationary rate (WTH??) and at the same time, now I’m getting paid less because of the big drop in the exchange rate. Bad news for me! Thoughts?

    • Thanks for your comment. I believe the BOJ wants a weaker exchange rate so that exports will be more attractive and that inflation of imported goods will rise. Having falling prices for a long time means that consumers expect them to fall, by less, etc.

      • Shawn Sato-Veillon on

        Thanks for the reality check… glad to know I’m not cookoo! Well… LOL nevermind. hahahah