08:30, 22 November

Consolidates Around Key 113 Level

In the last couple of weeks the USDJPY has eased back to the key 113 level after displaying some reversal candlesticks at the recent peak, namely some doji candlesticks. It has rallied a little in the last few days to return to this level. The last month or so has shown how key the 113 level is presently. After falling strongly from the 2018 high above 114.50 down to below 112, it did well to recover to the 113 level. The 113 level provided stiff resistance to the currency pair back in July and forcing it lower strongly so it is no surprise that it is consolidating around this level for the moment.

Throughout September the USDJPY surged higher from the key 111 level up to resistance at 113 for a few days before pushing higher to the 2018 high above 114.50. Throughout August the USDJPY was content to trade right around the key 111 level keeping a reasonably tight range for that time. In the middle of July the USDJPY surged higher to a then 2018 high just above 113 before falling strongly to the 111 level where it enjoyed solid support again. The 111 level will be expected to offer support again should the USDJPY retreat from its current levels.

Towards the end of May the USDJPY reached a four month high above 111 before falling sharply in the week after and after forming a few solid reversal candlesticks around the recent peak. Since the end of March, the USDJPY had also rallied well from 15 month lows below 105 to return back to the key level of 107.50 and well beyond. After trading within a range roughly between 108 and 114.50 for most of last year, the USDJPY started off this year moving down towards the bottom of the range again, however it has since climbed steadily higher since March to return to its current trading levels.

The Bank of Japan (BOJ) has moved into unchartered waters becoming only the second central bank and the first within the G7 nations to own assets collectively worth more than the country’s entire economy.The BOJ’s assets started ballooning when Mr. Haruhiko Kuroda took over the central bank in early 2013, vowing that such steps would boost Japan’s inflation to two per cent in two years, and following a five year spending spree designed to accelerate weak price growth.To put it into perspective, the 553.6 trillion yen of assets the BOJ holds are worth than the combined GDPs of five emerging markets – Turkey, Argentina, South Africa, India and Indonesia.It has been argued that the BOJ’s policy is not sustainable, as they would suffer losses if it would have to raise interest rates to two%.Further, in the event of an emergency, the BOJ may not be able to finance government bonds any longer.Japan’s long run of extreme monetary stimulus has drawn increasing criticism over the impact it’s had on small banks, however the central bank is likely to keep inflation as its primary policy consideration.The BOJ’s priority remains inflation because banking system problems aren’t imminent yet.