The
Japanese markets opened on Tuesday after a ten-day break as the country
celebrated the “Golden Week’. This is a week in which the country welcomes a
new emperor. As the markets opened, traders found that the Japanese yen was
hovering above the $110.70 level, which is where it was before the markets
shut. To many traders, this was a good thing because there were expectations
that a flash crash would happen at a period of low volumes.
Part
of the reason why the Japanese yen has strengthened against the USD is that
Donald Trump has showed that he will continue with his trade war. On Sunday,
out of the blue, the president tweeted that the country will implement
additional tariffs on Chinese goods on Friday this week. When there are so many
market risks, the yen is often viewed by traders as a safe haven. It is viewed
as a haven because of the vast international holdings that Japan holds. For
example, it is the second largest holder of US debt after China.
The
second reason why the yen has gained is because of the Bank of Japan. In its
most-recent meeting, the bank gave a guidance on when it will hike rates. This
guidance was for a rate hike in 2021. While this is still far, it provided
clarity to investors on the monetary policy. In the minutes of the meeting
released yesterday, some officials sounded a warning about the prolonged period
of ultra-low interest rates. They argued that these rates will certainly affect
the country’s small banks.
While
the yen could continue moving higher, there are two things traders should focus
on. First, the country will release the household spending data tomorrow. This
number is expected to show an increase by 1.6%, which might be lower than
February’s 1.7%. On a MoM basis, the spending may rise by 0.5%. The average
cash earnings are expected to decline by minus 0.8%.
Second,
investors should be careful about the yen because domestic investors may receive
more than $399 billion proceeds from the redemption of the Japanese government
bonds. The risk is that most of this money will not be deployed in Japan, a
country with negative interest rates.
Meanwhile,
the USD/JPY pair has dropped from a high of 112.40 to a low of 109.85. On the
chart below, this price is below the 25-day and 50-day moving averages while
the RSI has remained at the 40 level. The Stochastic indicator has also
remained near the oversold level. While the pair could continue moving
downwards, it may retest the previous resistance level of 110.
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