CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
☰
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
✖

USD JPY The short half life of the BOJ s radioactive negative interest rate decision

Article By: ,  Financial Analyst
February 3, 2016 4:02 PM

According to Wikipedia, Hydrogen-7 is the radioactive isotope with the shortest half-life at about 21 yoctoseconds (10-24 seconds). Of course, nothing in financial markets moves quite that fast (despite the best efforts of some algorithms), but the half-life of Friday’s surprise BOJ interest rate cut has been shockingingly short, even by 2016’s fast-moving market’s standards.

While the decision to cross the “negative interest rate rubicon” represents a major shift from the BOJ, traders are starting to realize that the actual economic impact of the interest rate cut will be minimal. As we noted on Friday, “logistically, the impact of the change in policy will be relatively limited, as it will “only” apply to about ¥10-30T of reserves (the vast bulk of reserves will continue to earn 0.1%)…”

The BOJ may eventually opt to expand the holdings that the rate applies to (or cut rates further), but for today, the central bank’s decision is being completely overwhelmed by the massive wave of risk aversion enveloping global markets this week. In other words, despite (or in some ways because of) the now-negative interest rates in Japan, traders still view the yen as a major safe-haven currency. Therefore, the near-term direction of the yen will depend on market sentiment (read: price action in other major markets like equities and commodities) as much as traditional economic data out of the US and Japan.

Technical view: USD/JPY

On a technical basis, the longer-term view for USD/JPY remains unchanged: the pair remains locked within the 900-pip range from 116.00 up to 125.00 that has contained rates since November 2014. From a fundamental perspective, we continue to believe that the BOJ will take actions to defend the bottom of this range, as the last thing the Japanese economy needs is a strengthening yen, but the near-term momentum remains strongly in favor of the bears for now.

With the MACD rolling over below the “0” level and the RSI indicator topping out before reaching “overbought” territory, more short-term weakness toward the 116-117 zone in USD/JPY is possible if global equities remain on the back foot.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© City Index 2024