Good quick synopsis of the reasons everyone is piling into the USD/JPY long trade. Japan’s new monetary easing program is set to double their monetary base over the next two years. The most obvious affect here should be a weakening of the currency from a pure supply and demand standpoint. The less obvious but still very relavent effect is that the Bank of Japan’s asset purchases are driving down domestic interest rates to the point where the 10 year Japanese Government Bond is now yielding just .52%. Although we complain here in the US about interest rates being low you are getting more than triple that on the 10 year US Treasury which currently yields 1.73%. This means that:
- Global investors are going to sell the yen which they can borrow cheaply and buy other assets where they can earn a higher return. This should accelerate the selloff in the yen, and is also the reason why high quality assets globally have been rallying.
- Domestic Japanese investors should begin to look elsewhere for higher returns causing them to sell yen to buy foreign assets which are of course non yen denominated assets. As the guest commentator from the video points out however the Japanese have traditionally been slow to move so only time will tell how aggressively this variable plays into the picture.
While no specific levels were given this is a long term trade and trends in the yen can run for years. Traders that are looking to get into the trade now and hold for the long term may want to use levels below the support levels from
our chart of the day today as their stops.
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