If someone says that monetary policy no longer plays a key role in the course of the exchange rate on the Forex, do not believe them. Just look at the list of the best and worst performance of G10, to be convinced of the opposite. Among the leaders are the euro, the Swedish krona and the Norwegian krone. The situation in the economy of these areas increase the risk of abandonment of QE and the raising of the basic interest rate. Foreigners, on the contrary, are currencies whose central banks are not going to go far from cheap money policy as the yen and the swiss franc. In this regard, more than 4.5% of the USD / JPY rally at the beginning of the month of September seems quite logical.
After the Bank of Japan has moved to the targeting policy on the yield curve at the end of 2016, it has in effect introduced the dependence on the yen, the rate on the rate of the u.s. debt market. In this regard, the acceleration of consumer prices in the united States at 1.9% in August, the «hawk,» in the rhetoric of the Fed representatives, and to increase the likelihood of an increase in the federal funds rate in December from 33% to 34% to 72-73% of the total of the «door» of the USD / JPY in the faucet that is an uncomfortable position.
The USD / JPY, the dynamics and the yields of the U.S. Treasury
Source: Trading Economics.
Other pressures on the yen have been the results of the September meeting of the BoJ, the announcement of early general elections in the country of the Rising Sun, and the immunity of the market to geopolitical factors. The Governing Council has decided to retain the current settings of monetary policy, but its newest member has voiced his dissent, saying that the current level of monetary stimulus is not enough to carry out a 2% inflation target.
For a long time, the support to the «door» in the pair USD / JPY has been provided information on the conflict on North Korea. However, the latest spat between Washington and Pyongyang could not return the investors ‘ interest in safe-haven securities. Donald Trump has promised to wipe the enemy off the face of the earth, to which Kim Jong-un has responded, saying that the president of the united states would pay dearly for his words. As a result, the probability of regular tests of North Korean weapons has increased, and this forces the market participants of the battles to closely monitor the yen.
The decision of Shinzo Abe to dissolve the parliament and call new elections for the month of October has been widely discussed recently. The Prime Minister can become the person who led the government of Japan for the longest period in the history of the country. This factor is bullish for the stock market, the close correlation with the USD / JPY supports the buyers of the currency pair.
Let’s not forget that until the end of September, the details of the tax reform and the united states could become known. The implementation of which will allow us to count on the overclocking of the GDP to 3%. This factor has not been taken into account by the Fed in its forecasts. Improving this will increase the risk of aggressive monetary restriction and allow the USD / JPY to continue the event.
Technically, the breakthrough of the upper limit of the downward trading channel following the success of the test of resistance at 112.95 will create the prerequisites for the implementation of the target by 88.6% for the inversion of the «Shark». On the contrary, the inability of bulls to hold the above quotations, the level of support to 111.6 will be the proof of their weakness.
The USD / JPY, daily chart