USDJPY (2nd Trade of 2022 Revisited = EXIT)
On December 22, 2021, did I write the post about USDJPY (114.00 at the time) for a USD bull trade into 2022 with the target of 120.00 as high as 125.00…. well fast forward… the move has gone crazy and we traded as high as 131.35 in the process… when the market went crazy on the Yield story between the continuation of the FED hawk… vs the BOJ digging in on Yield Curve Control while the entire world freaks out on Inflation and higher rates….. we will see how this will end for Japan… but at this point BOJ’s Kuroda was unwilling to blink, given this is his last year as head of the BOJ and I think this is his legacy…..
Given Japan has a lot of experience in “manipulating” either rates or FX… and I do not mean it as negative as it might sound BUT that is what they de-facto did for more than 20 years…. but this time i just could NOT think of another word and if we look at what happens in the world and in Fixed income.. it may strike us as odd that the BOJ thinks buying unlimited JGB’s at 0.25% yield in the 10 year tenor is such a great idea…… I would NOT be surprised that come June or July… there will be a small tweak as I feel that maybe BOJ’s Ushida might be a name that might succeed Mr Kuroda and maybe he would be able to put an earlier stamp on the change of policy and rather that it ends in a face loss for Kuroda… it can be sold as transition policy or whatever BUT if Global Inflation continues to trend higher or stay elevated… it is hard to see that Japan can just continue with the current policy…so there is that risk from that side that maybe the 112.00 to 130.00 move is what we get for US 10 year reaching 3.200 vs 10 year Japan staying at 0.25%.
Also, the MOF (Ministry of Finance) has started to be very vocal in watching FX rates given the negatives of a weak JPY with soaring energy prices might even be too much for Japan… some of the coded language from the MOF in the 1990’s would already open the door for Currency interventions BUT of course that is a hard sell right now… while the BOJ is de facto easing…. it is hard to complain about a weak Currency.. so I cannot see official interventions BUT i would NOT be surprised if the MOF orders interventions by Stealth… meaning secret interventions just to either slow down the move higher in USDJPY or slow it down….. that now brings me to the core message.
We have reached our target in USDJPY a lot earlier than expected…. BUT never the less it is time to square up the last longs in USDJPY…. it could well be that we bounce again and we could easily see 130.00 again… BUT it is time to just move on….. square up… and see what else is out there.. also in light of the way global equity markets trade as well as the narrative around the Global Growth worries….. hence USDJPY and XXXJPY is probably trading at very rich levels now considering all that is happening in the world… and last but not least… my ADX has turned.. which would also start to signal that USDJPY looks RICH
Long story short…. this is the END of the 2022 trade in USDJPY.. we should take the money and run !!!
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