Karel Ruzicka @RoseThorn__Trade: "💹 𝐁𝐚𝐧𝐤 𝐨𝐟 𝐉𝐚𝐩𝐚𝐧 𝐰𝐢𝐧𝐬..."

Czech Republic

💹 𝐁𝐚𝐧𝐤 𝐨𝐟 𝐉𝐚𝐩𝐚𝐧 𝐰𝐢𝐧𝐬 💹 The Japanese Yen has seen high volatility this week. The whole process was sparked by the decision of the Bank of Japan (BoJ) on Friday, April 26, to keep interest rates at the bottom in the 0.00-0.10% corridor. It was a relatively naive assessment of the situation by the Japanese monetary authority, if it did not raise interest rates at least symbolically. Traders interpreted this move as a free way to attack the yen. The USD/JPY currency pair rose sharply from 155 yen per dollar before the BoJ decision to a long-term high of 160.20 on Monday, April 29. The Bank of Japan and the Ministry of Finance in Tokyo assessed that such a weak yen was already intolerable and could harm the local economy, and decided to intervene in favor of their currency. During the two massive interventions, during which they bought 9 trillion yen worth about $57 billion in the currency market, according to Bloomberg, they overwhelmed traders, forcing some of them to close their long positions in USD/JPY, sending the currency pair below 153 yen to the dollar. Weaker data from the US labor market later also helped the decline in USD/JPY. Slower growth in wages and jobs in the US means an earlier expected easing of monetary policy by the US Fed, which reduces the attractiveness of the dollar. Some traders thus buy the Japanese yen, simply because it is still cheap. The question is: Will massive monetary interventions help reverse the USD/JPY downtrend, even if they keep interest rates at zero in Japan? First of all, it depends on the Bank of Japan itself. If it gradually increased rates to at least a negligible 0.50%, such an attack by traders on the yen would not have occurred. After that, developments in the USA also play a role, of course. Expectations of relatively tighter monetary policy in Washington are widening the interest rate differential between USD and JPY yields, putting wind in the dollar's sails. However, from a historical perspective, interventions from Japan usually come at an abnormal deviation in the exchange rate and from a medium-term point of view, they mark a reversal in the trend. E.g. in 2011, after the nuclear accident in Fukushima, Japan intervened against its currency at an exchange rate of around 80 (!) yen to the dollar. Even though USD/JPY had been falling to historic lows for several weeks at the time, it was not worth speculating against the Bank of Japan, as the currency pair did not look much lower. See the picture of USD/JPY performance over the last 25 years. On the other hand it is necessry also to point out that the Japanese central bank also collects great profits with such market timing. It is now selling the dollars it bought in 2011 for 80 yen near 160 yen. To this we can add the significantly higher interest rate appreciation from holding the USD compared to the JPY over the last 13 years, and one would think that at their last meeting the representatives of the BoJ deliberately left the monetary policy so loose that those dollars (which the Japanese economy generates significant surplus) to sell interestingly in this way. $USDJPY $EURJPY $GBPJPY $AUDJPY $JPN225

Not investment advice. The author may have financial interests in the mentioned instruments.