In the confirmation hearing at the Japanese Upper House of Parliament, BOJ Governor Nominee Haruhiko Kuroda resumed his strong dovish stance, telling lawmakers what he would do if nominated. The nomination in itself is not at risk, as opposition parties have indicated that they like Kuroda, making this a mere exercise for Kuroda to prep the market for the next major BOJ action.
Content of the speech is rather predictable, though Kuroda gave us a peek on some of the actual actions he may embark on:
– Purchasing of long-term bonds to lower yields
– Additional easing measures in 2013 as current easing program not enough to hit 2% target
– CPI as measurement of inflation, not internal BOJ’s metrics
– Communication between market and BOJ to improve
– Cut in excess reserve rate possible, but need further discussion
– Employment figure NOT target of BOJ, unlike the FED
– BOJ will NOT finance government
– Monetary policy goal NOT aimed to boost asset prices
All this is fine and dandy, but market once again remained unconvinced without actual actions being meted out.
Yen actually strengthened while Kuroda was going about his dovish rhetoric, however price is still firmly on the uptrend after breaking 94.0 ceiling on 7th Mar. However, the aforementioned breakout is not due to BOJ’s speculation, but rather due to increasing risk appetite that saw US equities breaking record highs. Yields benchmark US10 has also fallen significantly, yet another sign that fear is subsiding. From the chart, we can see the huge reaction on US NFP last Friday with better than expected readings pushing price above 96.0 on the bullish news, a strong reaction that was not seen last week prior even though there were strong BOJ news in the form of BOJ Rate Decision and testimonies by Kuroda and his 2 Dep Governor nominees in the Lower House of Parliament. From the disparity, it is obvious that market is more sensitive to risk trends currently – good news = weak yen. This is not saying that BOJ is ineffective mind, as USD/JPY has rallied from 86.5 since 1st Jan without BOJ doing anything (open ended purchases does not count as it starts in 2014). Nonetheless, there are signs that speculators seeking BOJ intervention may have saturated their long positions, as we can see offers made above 96.0, resulting in price falling post NFP highs to a low 95.5.
Daily chart is showing a renewal of bullish momentum, though momentum may be hitting a snag with price touching the rising trendline and Stoch readings entering Overbought region. If price is able to hold 94.50 despite subsequent pullbacks, we could see a confirmation of the bullish breakout to bring price potentially higher. However, future direction of USD/JPY will still be heavily influenced by overall risk trends since BOJ’s influence is going down. As such, traders may wish to keep abreast with global sentiments especially with regards to US, Europe and China rather than placing all eggs into this current bullish breakout.
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