Ten days ago, we outlined the predicament the market masters were in as a result of the yen’s strength [see: The Only Charts That Matter.] We maintained, then, that the BoJ needed to get USDJPY back above the bottom of the red channel bottom dating back to 2014 in order to save stocks.
Last night’s venture into NIRP for a very small portion of Japan’s debt burden managed to get USDJPY up off the channel bottom. But, gauging from the futures’ lethargic reaction, investors are underwhelmed.
Note that the last time Kuroda et al levitated USDJPY, ES rebounded by 161 points, 117 of it in the first 24 hours. This time — an unimpressive 52 points.
Yes, USDJPY is back above the critical .618 Fib at 120.11. But, note that it stopped at the red channel midline, right where we can expect it to reverse. While TPTB are certain to pile into stocks today to endorse Kuroda’s brilliance, the reality is that we’ve seen this movie before. And, we didn’t like the ending.
The reality it that the yen carry trade [what’s this?] is fueled by the prospect of a continually cheapening yen — not one that flip flops about 120.11 for years on end.
If yen carry trade investors aren’t convinced that the USDJPY is ultimately headed higher, they won’t pile back into stocks. They’ll play the bounce, for sure.
But, a sustained rally isn’t in the cards unless Kuroda & Co. do something more dramatic than follow the ECB down the path of failed central planning policies.
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