Nikkei 225, USD/JPY: Situation “tense” as speculative moves amplify BOJ intervention risk

Both the Nikkei 225 and USD/JPP have surged since the BOJ October monetary policy decision on Tuesday
Japanese officials have warned there will be little tolerance for market moves deemed to be driven by speculative forces
Further gains in USD/JPY may trigger a more forceful response from the Japanese government

Japan’s Nikkei 225 has endured a whirlwind 24 hours, mirroring the USD/JPY in the wake of the Bank of Japan’s (BPJ) October monetary policy meeting. It’s surged more than 1000 points from the lows hit on Tuesday, largely reflecting stiffening tailwinds for Japanese exporter earnings thanks to the rapid depreciation in the Japanese yen, especially against the US dollar.

BOJ, MOF warn on speculative market moves

However, extrapolating near-term trends may be fraught with danger in this headline-drive market with Japanese officials wasting little time in expressing their displeasure at the speed of the yen’s unravelling. Masato Kanda, Japan’s vice finance minister for international affairs, has been the most vocal critic so far.

"Speculative trading seems to be the biggest factor behind recent currency moves," Kanda told reporters, adding authorities will "respond appropriately without ruling out any options". Ominously, he warned the situation has become “more tense” because of recent moves.

The use of “speculative trading” may have been specific given Bank of Japan (BOJ) Governor Ueda suggested yesterday that policymakers may allow more flexibility for market moves deemed not to be driven by speculative forces.

With Kanda and Ueda using similar terminology, it suggests tolerance for further upside in USD/JPY may be limited beyond that already seen. If that proves to be the case, it may also limit upside in the Nikkei 225.

Nikkei 225 enjoying weaker JPY

Having broken resistance at 31400 on the resumption of physical trade, bulls will be eyeing off a test of 31670. But given the potential risk of FX intervention, buying up here is risky in the near-term, as is the case for USD/JPY. There could be upside, but with one swift move the BOJ could change the picture entirely, depending on what Japan’s Ministry of Finance instructs it to do. Adding to warning signals, RSI is extremely overbought on the hourly chart. MACD is also about to cross the signal line from above.

Those considering shorts could wait to see what happen if the Nikkei 225 reaches 31670. A rejection at that level would allow for a tight stop to be placed above, providing protection against a continuation of the rebound. The obvious initial target would be the bottom of channel, currently found around 30400.

USD/JPY stalls ahead of multi-decade high

It’s a similar trade setup for those who think USD/JPY has run a little too hard too fast, adding to the risk of BOJ intervention. The pair topped out around 151.70 overnight, just 15 pips away from the multi-decade high of 151.95 hit last year. Shorts around the overnight high, with a stop above 152, is one option for a potential short trade with an initial target of 150.78, the highs set last month.

-- Written by David Scutt

Follow David on Twitter @scutty

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.