A task is waiting for the BOJ/MOF to save the ship
This is a bigger picture look at what may be waiting next month and in April.
Kuroda’s second term, with the help of Mamamiya and Wakatabe, could start with a big challenge: save USDJPY. That is if USDJPY closes Feb and March below these 2 levels : 108.25 and 107.21.
The upper level is the rising trend line from Sep 2012 when Abe got elected the first time and called Kuroda to the rescue. The lower is the 38.2% fibo of the whole 2012-2015 rally during
Abe’s first term with QQQQQE in full swing. Now we’re breaking below those 2 levels in February, one month before the end of the Japanese fiscal year and into Kuroda’s second term.
There’s been enough ink wasted on comments that a rising JPY would be damaging to Japan’s fight against deflation but Trump’s administration and the way they NON-manipulate the USD has forced the market to rethink it’s belief in a weaker JPY strategy. This will greatly limit the manoeuvre room the BOJ will have when time will come to recalibrate the Monetary Policy. It all went well as long as the JPY repeated the correlation between low rates, higher equity valuations with a ever improving economy. But since the correlation has for a good part broken down, they will have to force a few issues. We’ve already heard a few voices raised concerning the appreciation of the JPY and IF we would get a close of the fiscal year on the 31st March below the 2 aforementioned levels, I imagine the same rethoric to remain present.
It’s early doors, still more than one month to go, we don’t know where we will close but rest assured the BOJ is, amongst other things, looking at the same pictures we are and will have seen this pattern too.
Assuming we are below ,where could be the line in the sand? Four levels coincide in the 100.75-101.50 area:
1. THe 50 % fibo of the Abenomics move at 101.45
2. The bottom of the Monthly could will, end of March, be at 100.75, Japanese love their Ichimoku’s as we know
3. Trump’s election low 101.20
4. A series of 2014 swing lows.
in my opinion that’s where we will need to be VERY cautious for more decisive MOF/BOJ action if we can’t regain 108.50 and move away from it to the topside .
Watch this space in March, it’s historically not unseen that we get some submarine help to prop up USDJPY towards the 31st March to help exporters in the past, in this case to help Japan in its fight against deflation.