The yen created a Forex puzzle

Japan is called the Land of the Rising Sun for a reason. Not only does she get up early, but she also leaves Christmas sooner. Such a busy G10, which allows the consideration of yen as the most interesting currency of the week. It is true that one should make a reservation with internal macroeconomic statistics.

"Japanese" has been living a strange life for more than a year as it sharply reacts to the dynamics of the rates of the US debt market. This is promoted by the policy of targeting the yield curve, which became part of the practice of BoJ in late 2016. At the same time, the gradual increase in the core inflation and the positive GDP are interpreted in the context of maintaining confidence in the current leadership of the Central Bank. In February, the term of office of Haruhiko Kuroda expires and Reuters citing from an official source in the government claims that it will be prolonged. Indeed, what is the use of changing horses in midstream?

USD / JPY pair dynamics and US Treasury yields


Source: Trading Economics.

The US Congress is the "bearish" factors for US bonds. Their sales lead to an increase in yield, which supports the "bulls" for USD / JPY pair. At the same time, North Korea's high-sounding statement that the next UN economic sanction is tantamount to declaring war, which increases the demand for safe-haven assets. In my opinion, Pyongyang is unlikely to decide on new missile tests, because this will entail even greater restrictions on energy supplies to the disgraced country. Rapid de-escalation of the conflict will allow rates on American debts to continue the rally, which will put pressure on the yen.

Despite the fact that the "Japanese" is likely to continue to be under pressure in the short term, investments in the medium- and long-term horizon, it seems to be in good position. In fact, that investors are already beginning to speculate, will BoJ normalize monetary policy in 2018? Will the BoJ follow the path of the ECB, the Bank of Canada and the Bank of England? On the contrary, will they openly declare that their roads are diverged on the example of the RBA? De jure nothing is clear, and the de facto curtailment of QE is already in full swing. Instead of the planned £ 80 trillion increase in the monetary base, assets were purchased at just more than £ 60 trillion that puts next year's figure to £ 44 trillion.

Haruhiko Kuroda has twice about the dangers of negative rates for the banking system, and his words. At the same time, no one will believe in the official normalization of BoJ's monetary policy.

Technically, the "bulls" of USD / JPY pair are managed to gain a foothold above the important support at 113. In case of a successful update in the December maximum, the pattern AB = CD with a target at 114.75 will be triggered.

USD / JPY pair daily chart


The material has been provided by InstaForex Company -