Macro Morning: Japanese fractures

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Nothing much happened over the past 24 hours.

European stock markets managed to close a little hgiher with the DAX up 0.94%, the CAC up 0.97% and stocks in Milan and Madrid up 1.55% and 1.20% respectively. The Nikkei had another mad trading day yesterday finding support under 14,000 for the 3rd session in a row which elevates the 13,940/50 region into significant support and the pressure remains on the USDJPY.

A couple of members of the BoJ were revealed by the minutes, released yesterday, to have been concerned about the ability to both drive inflation higher while at the same time buying bonds and concerned that the market might see this as “contradictory”. Indeed I read in Quartz this morning that Richard Koo from Nomura said:

…read the selloff as a sign that the BoJ can’t keep yields down “no matter how many bonds it buys,” and that that could trigger a “loss of faith in the Japanese Government”

If that happens the very close nexus between the Nikkei and the yens move could be broken as the yen sells off toward 150 on the loss of confidence and the Nikkei gets hit because yields are rising as the market loses faith in the BoJ and the Japanese Government and its debt level, changed current account circumstances and demographics.

It is probably too early to say the Nikkei rally has ended. But it looks like a deeper retracement could be on the cards if 13,940/50 breaks towards 13,000-200.

nikkei, nky, nikkei dow, nikkei chart daily

One other thing to note for FX traders is that the market is very short yen at the moment with the CFTC data showing net big spec shorts of more than 95,000 which is a 12 month low.

So there is room for this USDJPY reversal.

jpy, usdjpy, yen, dollar yen, dollar yen quote, daily chart

The chart suggests that  USDJPY is biased to a test of 100 and should that break the trend line at 98.00/10 becomes the target.

Looking at the Aussie dollar which remains under pressure and I’d expect that over the next few days it will retest below 0.96 to see if the support is still there. Last nights low was 0.9613.

Data

Nothing exciting till Case – Shiller house prices in the US tonight.

Twitter: Greg McKenna

Comments

  1. Ronin8317MEMBER

    As the other members in the BoJ board have very little decision power, what they think is kinda moot. As to their claim of being ‘contradictory’, either they need some economic lessons, or they’re just telling the world they don’t agree with ‘Abenomic’. (or both). If inflation is 2%, your 10 year bond yield will go up, that is inevitable. However the point of the exercise is exchange rate manipulation, everything else is secondary, and the ‘inflation target’ is merely a political cover for the case when inflation does pop up. It’s a return of ‘beggar thy neighbour’ mercantilism, because almost every other country in the world is doing the same.