After weeks of speculation, it appears that Shinzo Abe has his man to head the Bank of Japan. Enter Haruhiko Kuroda, who is expected to be named this week in Abe’s nomination to the Japanese Parliament. Kuroda, who is currently the head of Asian Development Bank, was a fierce proponent of the incumbent BOJ chief. He has been criticizing BOJ for being “too soft” on their policies, and believes that the 2% inflation target Abe set is achievable – making him the best candidate to support “Abenomics” in the next few years as Governor. Also, he is a Yen bear, coming on record to say that Yen is just undergoing “natural adjustment” despite weakening to over 92 against the Greenback (at the time of his statement). If a 1,500 pips move in USD/JPY can be regarded as “natural adjustment”, one shudders to think how far Kuroda will push the Yen if he wants to achieve the 2% inflation target.
Market certainly believe that Kuroda is strong enough to weaken the Yen. Price gapped 80 pips higher to above 94.20 at the open, breaking the Kumo and forming a bullish Kumo twist in the process. Price did pullback immediately after gapping but overall bullishness remains with price staying above 94.0 convincingly (above the previous swing high on 21st Feb) in the short-term.
Bulls still have some work to do on the longer-term timeframe with price still under the rising trendline. Certainly we are not as bearish as before, but price should preferably move back before stronger bullish intent can be established. Failure to break above the trendline will put bulls on the backfoot. The current trendline level is also at the confluence of the ceiling found on 12th Feb, hence a move above the trendline will also signify a breakout for the consolidation range between 92.2 – 94.4.
Ultimately the nomination does not really change anything. Pedantic observers will certainly point to the fact that the Japanese Parliament will need to vote on any candidate that Abe nominates, and as such we are still in the very early stages of seeing a confirmed candidate for the position of Governor. However, it is highly unlikely that the Liberal Democratic Party majority will go against Abe’s wishes, and hence this shouldn’t be a concern for trader. Rather, we should be wondering why the position of BOJ Governor matters at all, especially when Shinzo Abe has threatened to change the law around BOJ to strong arm BOJ into submission. In fact, Shirakawa and his deputies have passed the 2% inflation target despite them not truly believing that the 2% target is achievable, or even enough to bring Japan out of the rut even if they do reach it. As such, Yen’s current weakness (and Nikkei 225 rally) is simply supported not on fundamentals but on sentiment alone, a dangerous situation that could easily reverse.
The Yen’s Easy Moves Are Over