Yen Aims For Parity

Includes: FXY, UDN, UUP
by: FXstreet

The Japanese yen is extending its bearishness at the beginning of the week, pushing USD/JPY to the area of 93.50/60, exalted by the recent first public testimonies by BoJ Governor-candidate Haruhiko Kuroda, who sounded as dovish as the markets were expecting.

… Weaken the yen, whatever it takes

The candidate shared his vision of a weaker yen and his suggested paths to finally vanquish the entrenched deflation. This all points to the BoJ to start aggressively pumping more liquidity into the economy in the near term horizon, as Kuroda stated that the 2.0% inflation target would be "reachable" within the next two years.

Hence, further JGB's would be a safe bet - removing the maturity limit of 3 years - although Kuroda hinted at the likeliness to expand purchases to riskier assets, although it seems that this point would find some sort of opposition and would claim more time than initially thought. Regarding the lending benchmark, Kuroda admitted there is no space for a cut, diverting any such focus on a probable cut of the interest paid on the excess reserves held by the central bank.

In addition, efforts by the Bank of Japan to wake up inflation expectations that would eventually lead to its 2.0% inflation target would be beneficial not only for the domestic economy, but also for Asian economies as a whole. If Japan successfully leaves deflation behind, it could boost the growth of the surrounding regions and thus significantly contribute to a global recovery.

In any case, the FX community would have to wait until the next BoJ gathering due on April 3rd-4th, for official confirmation of this not-so-new project by the central bank, although this time it seems that credibility is on its side, a major bonus.

Technically speaking, the cross is now navigating the area around the mid 93.00s, re-testing the bottom of the up-channel set from November and in the proximities of the 21-day moving average at 93.15
Further upside impulse would initially aim for 2013 tops at 94.73 (February 1st), ahead of 95.00 (psychological limestone), en route to the 100-month moving average at 98.29

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.