After the Bank of Japan changed the government bond yield control plan (YCC), the market priced the Bank of Japan’s monetary policy, the volatility of the bond market increased, and the exchange rate of the yen rose sharply.
Japanese debt hits record sell-off
According to data from the Ministry of Finance of Japan, in the week of December 24, Japanese investors reduced their holdings of overseas medium and long-term bonds by 459.5 billion yen, and reduced their holdings of short-term bonds by 84 billion yen; Short-term debt holdings were 2,206.4 billion yen. The pace of investors selling JGBs has not stopped.
It all started on December 20 last year, when the Bank of Japan expanded the ceiling of the government bond yield from 0.25% to 0.5%. The Bank of Japan’s original intention was to extend the ultra-loose monetary policy. As a result, the market intensified the selling of Japanese bonds, and the Bank of Japan bought a record 17 trillion yen of bonds.
Affected by the epidemic and expectations of a global economic recession, Japan maintained an ultra-loose monetary policy to boost the economy. As Japan’s inflation data approached the 2% target, this gave investors a different view and accelerated the sell-off of bonds, further stimulating Japan’s Yuan’s rise.
This is not the first time that the market and the central bank have diverged. Behind the changes in Japanese debt and the yen are also the impact of a weaker dollar. In 2022, the Federal Reserve will start the interest rate hike cycle, and the yen will depreciate extremely rapidly. Now investors are frantically replenishing the yen. The actions of the Bank of Japan and sentiment in the bond market will continue to ferment, while the market has not stopped selling Japanese bonds, and the yen exchange rate may rise above the 130.00 mark.
USD/JPY: The channel is intact, falling below 130.00 may open up more room for decline
USD/JPY is in an obvious downward trend of shocks. Judging from the increase of 114.80-152.00, the current downward rate has exceeded 50%, and the trend has changed from a callback to a decline.
The U.S. and Japan officially started their downward trend after falling below the blue trend line, and then continued the trend with a green downward channel. The rebound highs gradually decreased, and the price touched the 130.00 mark. big. If it breaks 130.00 effectively, the space below is huge, and the big targets are 125.00 and 120.00.
According to the trend of the channel, if the exchange rate stops falling at 130.00, there is still room for a rebound. The resistance level is at 133.00. It cannot break through this line. Only on this line can the United States and Japan rebound and rise again, otherwise they will continue to be under pressure and bearish.
In terms of strategy, maintain the idea of rebounding and shorting,Backed by the resistance of 133.00-135.00, continue to hold short positions. The target is 130.00. After breaking through, it will look at 128.00 and 125.00; Until the exchange rate breaks through 135.00 and turns to be bullish overall.
As a representative currency, USD/JPY often fluctuates suddenly in the Asian market, so you should pay close attention to it.
(by Arthur)
Never jump headlong into a bad market for fear of missing out on a big move. Once a big trend starts, it lasts longer than most people think.
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