BOJ, JPY and EUR/USD: Levels, Ranges, Targets

 

The last BOJ economic experiment occurred in the 1990’s and the 11th failed mission since WW2. Previous escapades focused on Oil imports and exports of Japanese products. The Japanese never formulated a successful mix in this venture.
The most outrageous economic attempt was the 1990’s Peg of USD/JPY to the Japanese Money Supply and to GDP. The idea was USD/JPY would trade and stabilize in between GDP and the money supply. The 1990’s was a fairly successful decade for nations and currency prices saw much volatility. Much volatility meant the Money Supply was wildly volatile therefore USD/JPY followed the money supply volatility. Intended BOJ targets for USD/JPY went miles out of kilter.

The overall added feature to the failure of the 1990’s venture was the Sales Tax increase. Japanese governments historically, Left or Right, fell deeply in love decades ago with not only Tax revenue but punishing taxes. Sales taxes were raised as well as Dividend taxes to equally abuse markets and the masses. Picture today’s Congressional Republicans and the anti American Democrats in the love for tax revenue and one will note to grow government and economic success is antithetical. Its an oxymoron to believe healthcare changes positively when tax increases remain at the same high levels.

The traditional Japanese end result to all 11 experiments is they follow the theories until it destructs. Theories because the Japanese never followed sound economics. Interesting for a college classroom but in practice, it never worked. The BOJ should state the same old tired routine. Stimulus remains and Inflation target seen years in the future.

The difference in today’s BOJ assessment from previous is the current Yield curve went negative as 10’s minus 3 month trade at 0.82, 10’s minus 2”s trade 0.81 Vs the 10 year at 0.07. Short end spreads trade above the Japanese 30 year bond. Long USD/JPY must see a yield curve reversal and a more positive message from the BOJ.

USD/JPY is oversold but stuck between vital break points at 111.54 and 112.50.

Overbought EUR/USD is fast approaching 1.2092 and the ECB’s point at 1.2013. Just as the Japanese are wedded to their experiments, I see Draghi continue with the overall 19 year mission to grow the money supply in “whatever it takes”. This means lower EUR over time.

The bottom side to EUR today is located at 1.1489 and 1.1481 where we see a bounce.

GBP/USD. Is fast approaching overbought yet again and vital break points are located at 1.2828 and 1.2808.

Watch JPY cross pairs as EUR/JPY is far overbought and break points are located at 127.73 Vs 131.51.
Brian Twomey

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