Bank Of Japan Maintains The Global Printing Campaign

Sep.19.12 | About: CurrencyShares Japanese (FXY)

In "Enhancement of Monetary Easing" the Bank of Japan (BoJ) rushed to match the Federal Reserve's renewed commitment to printing money to resolve economic malaise. This is not the intervention I had been anticipating soon after a Fed easing - for example, see "Now That Bernanke Has Made His Move, It Is Azumi's Turn" - but it had a related effect on the Japanese yen (NYSEARCA:FXY). (Going into this meeting, I frequently recommended shorting the yen).

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The USD/JPY popped further away from its 50-day moving average:

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USD/JPY moves further away from support at 78 and the 50DMA:

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15-minute chart shows the details of the post-easing surge

It is easier to see the anticipation of further BoJ easing in the EUR/JPY and GBP/JPY pairs:

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The euro has been rallying against the yen since July lows:

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The pound has moved higher against the yen all year off lows with the bounce from the June lows building a firmer base.


I only had a small position long EUR/JPY ahead of this announcement, and I sold into the pop. I think these yen pairs in particular are buys on dips in the future, especially in moments where the market panics and reaches for Japanese yen out of habit. I still expect an intervention (or more jawboning to that effect) if the USD/JPY manages to work its way back below 78. I am expecting USD/JPY to zigzag a lot as the market struggles to price in the prospects of sustained easing from the Fed and the increased likelihood of intervention the stronger the yen gets.

In its latest statement on monetary policy, the BoJ "…decided to increase the total size of the Program by about 10 trillion yen, from about 70 trillion yen to about 80 trillion yen." In doing so, the BoJ cited a "somewhat deeper…deceleration phase" in the global economy…

Regarding risks, there remains a high degree of uncertainty about the global economy, including the prospects for the European debt problem, the momentum toward recovery for the U.S. economy, and the likelihood of emerging and commodity-exporting economies simultaneously achieving price stability and economic growth. Furthermore, attention should be paid to the effects of financial and foreign exchange market developments on economic activity and prices.

Similar to the Federal Reserve's promise to continue purchasing assets until the U.S. economy responds, the BoJ will also "…proceed with the monetary easing in a continuous manner by steadily increasing the amount outstanding of the Asset Purchase Program."

The global printing campaign in paper currency continues apace. Keep a tight grip on your gold and silver. In the meantime, the ancillary impact of the BoJ's expansion of monetary easing is to put the market into a clear "risk on" mode. This should weaken the U.S. dollar all over again for a day or two and then the previous stabilization process should reassert itself.

Be careful out there!

Disclosure: I am long GLD, SLV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.