Strategy Video: BoJ May Not Keep the Yen Crosses Up for Much Longer

08/06/2015 9:00 am EST

Focus: FOREX

In this video, John Kicklighter of takes a technical look at the Japanese yen crosses and updates them, not because they are incredibly active now, which indeed is not the case, but rather because they represent huge amounts of potential energy and when they clear their ranges, they are going to offer a great opportunity for some trades and activity.

Talking Points:

  • BoJ Deputy Governor Kikuo Iwata said in testimony that rate differentials may be priced for the yen crosses
  • He also stated the central bank is considering plans for a QQE exit internally, but it is not yet time
  • Curbs on further stimulus support for the yen exposes a greater risk should risk trends drain support

There are two fundamental themes that are still keeping USD/JPY and yen crosses from sinking: general risk appetite and the Bank of Japan's efforts. Both of those pillars however seem to be turning tremulous. We have already seen evidence of an uneven outlook for speculative appetite. While global equity indexes have leveled out, we have seen other benchmarks actually dive. As one of the few hold outs, this overvalued carry outlet certainly presents a considerable risk. In fact, the interest income on these positions has long deviated from the path of exchange rates and made the disparity that much greater. One of the last refuges for bulls to hold to is the BoJ's seemingly limitless appetite to deflate the yen-whether intentional or coincidental-for feeding trade, growth, and inflation. Yet, with that connection now fading in remarks given by BoJ members like Deputy Governor Iwata, a turn may be closer at hand than previously expected. We focus on the yen in today's strategy video.

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John Kicklighter, Chief Currency Strategist,

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