Yen Traders Looking for More Aggressive Stimulus from Bank of Japan

Look for a higher opening in the USD JPY based on stronger trading overnight. Japanese investors are reacting negatively to news that the government is proposing a third economic stimulus plan in an attempt to revive the struggling economy.

Look for a higher opening in the USD JPY based on stronger trading overnight. Japanese investors are reacting negatively to news that the government is proposing a third economic stimulus plan in an attempt to revive the struggling economy. Money is moving back out of the lower yielding Yen and into the U.S. market as trader appetite for higher-yielding assets is increasing.

Predictions are for this newly proposed $600 billion plus stimulus package to create new demand for Japanese goods as well as about 2 million new jobs. Traders are selling the Yen as this new plan amounts to flooding the market with cash to jump start the economy.

This new plan is just another indication that the Japanese government and the Bank of Japan believe a weaker Yen will attract new demand for Japanese goods. This may be true in the long-run but in this current economic environment it is going to take a recovery in the economies of Japan’s two major trading partners to spur demand.

Until the U.S. and Europe can recover from their recessions, it really doesn’t matter how weak the Yen gets, the demand is just not there at this time. Therefore the economy is still going to decline.

The overnight reaction to the new stimulus plan suggests that investors wanted to see a more aggressive move by the Japanese Yen and the Bank of Japan. Choosing to provide stimulus is not what the market expected.

Most traders are looking for something more dramatic such as quantitative easing or intervention. It is a well-known fact that economic stimulus takes to long to move through the economy. Easing and intervention would have had a more dramatic effect on the currency and would have sent a stronger message to the global community.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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