Japan interest rate decision implications
Trading has been tricky lately with a mixed bag of fundamental news creating a lot of ‘chop’ in the market. The market is trying to get a read on the FED’s interest rate cut decision and it feels like every bit of news is making the timing less and less predictable. This week I wanted to have a look at Japan’s intended interest rate increase on Tuesday. What are the implications?
Japan implemented negative interest rates as part of its monetary policy in an effort to stimulate economic growth and combat deflation. Here are several reasons why ;
-Persistent Deflation: Japan has struggled with deflationary pressures for many years. Deflation, or a sustained decrease in the general price level of goods and services, can lead to declining consumer spending and business investment. By implementing negative interest rates, the Bank of Japan (BOJ) aims to encourage borrowing, spending, and investment to stimulate economic activity and raise inflation towards its target.
-Currency Appreciation Concerns: Japan has also been concerned about the strength of its currency, the Japanese Yen (JPY), which can negatively impact its export-driven economy. A strong yen makes Japanese exports more expensive for foreign buyers, potentially reducing demand for Japanese goods and hurting export-dependent industries. By introducing negative interest rates, the BOJ aims to discourage investors from holding onto yen-denominated assets, thereby weakening the currency and boosting export competitiveness.
-Limited Policy Tools: With interest rates already near zero for an extended period, traditional monetary policy tools like cutting interest rates further became less effective in stimulating economic growth. Negative interest rates represent an unconventional policy tool for central banks to provide additional stimulus when traditional measures have reached their limits.
-Global Economic Environment: Japan’s decision to adopt negative interest rates was also influenced by the global economic environment. Several other central banks, including the European Central Bank (ECB) and the Swiss National Bank (SNB), had already implemented negative interest rate policies in response to similar economic challenges.
-Bank Profitability Concerns: Negative interest rates can pose challenges for banks’ profitability, as they compress net interest margins and reduce the income banks earn from traditional lending activities. However, policymakers in Japan believed that the potential benefits of stimulating economic growth and inflation outweighed the concerns about bank profitability.
Despite the implementation of negative interest rates, Japan’s economy has continued to face structural challenges, including an aging population, high public debt levels, and limited productivity growth. While negative interest rates have helped support borrowing and spending to some extent, achieving sustained economic growth and overcoming deflationary pressures remain ongoing challenges for Japan.
” TOKYO, March 14 (Reuters) – The Bank of Japan has started to make arrangements to end its negative interest rate policy at the March 18-19 meeting, Jiji news agency reported on Thursday.
A number of major firms this week announced wage hikes above those of 2023, heightening expectations that the rosy pay trends will give the central bank leeway to make the key policy shift.
Sources have told Reuters that the central bank will debate the end of its negative rate policy next week if Friday’s preliminary survey on big firms’ wage talks outcome yield strong results.
The BOJ will make a final decision on what would be the first rate hike in Japan in 17 years after reviewing Friday’s preliminary wage survey result, Jiji said. (Reporting by Kantaro Komiya; editing by Christina Fincher)”
Let’s look at some key charts….
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DXY chart:
Price is still below the 200 ema (On the daily). It looks like price wants to test this area before potentially moving lower. A break above the 200 would make me bullish on the dollar.
Gold:
Stronger $ on Friday putting pressure on Gold.
Oil;
Big bounce off the 200 ema.
Bitcoin:
Fundamentals are still strongly behind crypto at the moment. Again, the stronger $ putting pressure on BTC on Friday.
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Red flag news:
A TON of news next week! Be very very careful when entering a trade.
–FOMC on Wednesday!!!
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MAJORS
EUR/USD: 1.0800 to 1.0830 is still a key level for me. Looking to long from this area.
USD/CHF: 0.8900 to short. If it breaks above this area, I’d look to long.
GBP/USD: 1.2500 to long. Could look to short from the current area on the shorter timeframes.
AUD/USD: Looking to short from the 0.6580. If it breaks above this area, I’d look to long (see video).
NZD/USD: Same idea as the AUD pair. Short from the current position. If it breaks above 0.6100, I’d look to long.
USD/CAD: Again! 1.3500 is a MASSIVE level for this pair. Looking to long on the shorter timeframes. If it breaks below 1.3500, I’d look to short.
USD/JPY: Still leaving alone. See my blog post tis week.
CROSSES
EUR/GBP: On the shorter timeframes, I’m looking to long from 0.85700
EUR/CAD: Long from 1.4650. I’m also looking on the shorter timeframes for earlier entries (long).
AUD/CAD: I need a clear (big) break above 0.8900 in order to long.
GBP/AUD: Looking at 1.9300 to long (shorter timeframes).
GBP/CAD: Looking to long from 1.7000. (See video)
GBP/CHF: I hope a lot of you have made profit on this pair in the last few weeks/days 🙂 Very bullish still, looking at 1.115 to long again.
AUD/NZD: Nice textbook setup we discussed in the last few live sessions. If it breaks above 1.0780, I’d look to long again.
As always, remember correlation! -Especially when taking more than one JPY trade!
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M3 -Shorter timeframes.
I do my analysis on daily and weekly charts first and make a note of the MAJOR areas of support and resistance. Then copy them onto Pierre’s Earth and sky template. Then I make a note of the weekly & monthly pivots points and add them to the charts. You will see lots of opportunities line up during the week. The important thing then is to select a bias for the next few days and do NOT take trades if the price is too near a trend line or pivot. Ideally, you want to buy when the price is near a major support and or pivot point line and has the potential to make at least 40 pips. Vice versa for a short.
New members, please note: If I am looking to take a trade long, for example, 1.5000, I place my order 10 pips above & 10 pips below for a short. This is because price often does not quite reach a major line and you need to allow for spreads.
Regards
Thinus
