Don’t Fight Bank of Japan

| 9 april, 2013 | 0 kommentarer

Summary: The Japanese Yen has fallen dramatically on a critical Bank of Japan decision. Here’s a list of currencies we think may do particularly well against the JPY through upcoming trading.

Correlation between the USDJPY and the 10-Year Japanese Government Bond Yield

bank_of_japan_offers_japanese_yen_trading_body_Picture_1.png, Don't Fight Bank of Japan - Ranking Currencies vs Japanese Yen

US Dollar/Japanese Yen Exchange Rate (lhs)

Inverse of the 10-Year Japanese Government Bond (JGB) Yield (rhs)

Correlation between the USDJPY and inverse of 10-Year Japanese Government Bond Yield

The US Dollar/Japanese Yen exchange rate surged and the 10-year Japanese Government Bond (JGB) Yield tumbled following the Bank of Japan’s decision to embark on hyperactive Quantitative Easing measures. Recent price action put the short-term correlation between the USDJPY and JGB’s to its strongest in over a decade.

Manage risk on your forex trades with our free Risk Management Indicator

In effect we can “explain” recent Japanese Yen weakness (USDJPY strength) by simply looking at Japanese Government Bonds. Why? After over a decade of Zero Interest Rate Policy (ZIRP) in Japan, the Japanese investor has become the largest net-creditor to the rest of the world. In other words—Japanese capital chases higher yields available abroad.

Ranking Currencies Against the Japanese Yen

bank_of_japan_offers_japanese_yen_trading_body_Picture_2.png, Don't Fight Bank of Japan - Ranking Currencies vs Japanese Yen

All else remaining equal, we predict that extremely low JGB yields will continue to push the Japanese Yen to fresh lows against currencies with higher interest rates and better yield prospects. Unfortunately none of the major currencies really fit the bill, as almost all major government bond yields trade below their long-term moving averages.

If we can’t get a perfect fit, we can get close; the Euro seems to be in a relatively good position to benefit from Japanese investor inflows, while the Australian and New Zealand Dollars are not far behind. It does not seem completely coincidental, then, to note that post-BOJ performance lines up fairly well with yields. We expect relative interest rates to continue driving the Japanese Yen currency pairs through the foreseeable future.

Follow the news that moves major interest rates directly from your charts via our DailyFX Calendar App

Forex Correlations Summary

View forex correlations to the SP 500, SP Volatility Index (VIX), Crude Oil Futures prices, US 2-Year Treasury Yields, and Spot Gold prices.

Written by David Rodriguez, Quantitative Strategist for

Receive future correlation studies and other reports via this author’s e-mail distribution list with this link.

David specializes in automated trading strategies. View an outline of the most popular sentiment-based trading signals—including download links—via this DailyFX article on trading systems.

Contact David and follow via Facebook and Twitter:

Join David’s e-mail distribution list by sending a message with subject line “Distribution list” to [email protected]

Taggar: ,

Kategori: Analys från DailyFX

Om skribenten ()

DailyFX från FXCM ger dig dagligen färska tekniska analyser på valuta och råvaror. FXCM är en ledande handelsplattform för trading av finansiella tillgångar med kraftfulla verktyg för alla sorters handel.

Lämna ett svar

Din e-postadress kommer inte publiceras. Obligatoriska fält är märkta *