We published USDJPY’s next highest target months ago with the caveat that it would mean completing a large IH&S that targeted much higher levels and was, thus, far from certain. With inflation already rising sharply, would the BoJ willingly inflict even higher prices on Japanese citizens and businesses just to keep the yen carry trade going? Wonder no more. In the past month, USDJPY has completed three separate IH&S Patterns. Unlike other central banks which are acting to reduce inflation, the BoJ is guaranteeing even more. It will certainly mitigate stocks’ downside potential to some extent, but at what cost?

continued for members…The patterns are so big it’s hard to get them all on a chart. Here’s a weekly chart showing the target for the red pattern.

But, we have to go to a monthly chart to take in the possibilities.The last time we had a severe breakout like this was in 2015-2016, when USDJPY soared past overhead resistance at 120.11. Stocks were buoyed, but then fell apart when the 120.11 Fib didn’t hold.

It’s still very early stages, and the BoJ obviously has significant control over the Japanese bond market. But, you have to wonder at what point they’ll start to get concerned. As inflation breaks out……the 10Y is once again costing them interest expense. Stay tuned.

Elsewhere in the markets this morning…

Oil and gas are backing off their TL backtests… …which could take some pressure off of rates – but hasn’t yet.

Elsewhere in currencies, EURUSD is still plumbing lower lows……and DXY has officially broken out of its rising channel. Remember, this is in keeping with our base case that the Fed will enlist a higher USD in its effort to fight inflation.

With so many fires to put out, it remains to be seen whether or not the Fed will take its eye off the gold/silver/bitcoin space. Back when investors were buying into the Fed’s transitory argument, suppressing gold and silver prices was good sport. The argument: If they faltered, how could inflation be a problem? While they still have quite a ways to go, they’re making good progress in breaking out of their breakdowns.

I still see bitcoin as a special case. Whatever the upside potential is from a fundamental standpoint, it’s a threat to central banks everywhere due to the difficulty in tracking and taxing it. I expect it to continue to come under pressure.

A reminder:

(1) it completed a large H&S Pattern that targets 15,277
(2) it has backtested the neckline of that pattern
(3) it has backtested its SMA200 after breaking below it
(4) it completed a death cross back in JanuaryGLTA