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

–Romeo

Advertisements
  1. Click, check, click:
    – JAPAN PREPARES FOR CURRENCY INTERVENTION, NIKKEI SAYS
    – COORDINATED INTERVENTION MAY FOLLOW JAPAN ACTION: NIKKEI

    http://www.zerohedge.com/news/bank-japan-coming-or-most-likely-not

  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.

    (http://www.reuters.com/article/2011/08/02/us-japan-economy-idUSTRE7710FJ20110802)

    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.

Comment

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s