Diary of a Financier

Bank of Japan Intervention Neigh

In Capital Markets on Mon 1 Aug 2011 at 10:17
  • BOJ wasn’t going to intervene with USD & EUR facing headwinds.
  • Now that USD has found its footing (due to debt deal), expect BOJ to buy USD against JPY.

With the US having resolved its debt problems for the near-term, the door is open for the Bank of Japan to intervene in weakening its Yen.  Recall my comments from July 12:

JPY breached that support once during the earthquake 1q2011.  The BOJ stepped in (as it has in the past) to weaken JPY in defense of its exporters/competitiveness.  I shorted JPY last time we touched that threshold, but this go-around looks more conducive to continuing the rally.  With traders challenging the BOJ to act, I find no high-probability opportunities here, so I won’t trade this breakout…

I have to be honest, this looks to continue sliding over the coming weeks-month, but it is nearing the bottom of its trading range in the weekly chart…

BOJ will reload to fight JPY appreciation another day, but right now, there’s very little opposing a move higher.  The BOJ may be wise to conserve resources for the long-term, since the EUR is inertially weakening against all comers.

It simply wasn’t worth the BOJ’s resources to weaken JPY with the inherant headwind of soft EUR & USD.  JPY weakness is domestically desirable for export competativeness.  Japan’s biggest tradeflows are denominated in EUR & USD, so it was counterproductive to intervene against those major counterparts when Europe was disintegrating and the US was playing chicken with default.

Now that USD is on solid footing, I expect the BOJ will buy USD against JPY this week (USDJPY @ 76.50)–as it’s no longer an exercise in futility.  I will likely not buy USDJPY (short FXY), unless it hits its bearish trendline around 75:

USDJPY daily

Even though all fractals rest in extremely oversold territory:

USDJPY monthly


  1. Click, check, click:


  2. Here’s confirmation from the main-stream media:
    Japan primes markets for FX intervention… signaling it may try to tame the unit with a combination of yen-selling and monetary easing.


    I was all over this. I’m still not buying until I see support tested at 75, which is proving wise as USDJPY is still trading down despite the announcement.


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