The surge that happened in the value of the U.S. dollar relative to the Japanese yen on Nov. 21 illustrates the importance of the policy decisions made by the central banks of these two nations.
The movement of the two currencies – and the fact that it was attributed by several market experts as being caused by the announcements of the central banks of both the Asian nation and the United States – could provide those who trade forex with helpful information.
Individuals who want to take part in such activities can utilize this knowledge and combine it with the announcements that these financial institutions make further down the line to produce educated predictions of where the currencies of the two nations will go.
USD/JPY rises to four-month high
The importance of such announcements was illustrated by the upward movement that the USD/JPY experienced on Nov. 21, after the Bank of Japan indicated that it plans to harness a monetary policy that is very loose for some time, according to Bloomberg. The greenback rose to as much as 101.11 yen. This figure represented the highest value for the USD/JPY since July 10.
This financial institution announced that it will not make any changes to its current stimulus plans after holding a meeting that lasted for two days, CNBC reported. Ed Rogers, chief executive officer of Rogers Investment Advisors, told the media outlet that this outcome was in-line with the expectations of many. Analysts had predicted that the Asian nation's central bank would not change its plans.
"The BOJ meeting – no surprises there and no surprises were expected," Rogers told the news source. "We think the policy makers feel very comfortable right now and are very confident. We think we will see more accommodative policy if needed but don't expect any dramatic changes any time soon."
Fed minutes boost dollar
While the yen received downward pressure from the announcement made by Japan's central bank, the minutes provided for the most recent Federal Reserve policy meeting helped to push the dollar higher, according to Reuters. These minutes indicated that if the economy is strong enough to justify doing so, the Fed could potentially begin reducing its quantitative easing from its current level of $85 billion per month.
"The Fed minutes did help the dollar a lot, especially against the yen, as it puts a December taper back onto the table," Vassili Serebriakov, who works in New York as a currency strategist for BNP Paribas, told the news source.
Lowering the amount of bonds that the central bank buys every month could help provide upward pressure for the greenback by helping to slow down the current expansion of the money supply. The Fed has increased its balance sheet to more than $3 trillion with bond purchases, and some have voiced their concerns that such stimulus could be inflationary because of putting so much money in people's hands.
Individuals who want to make money by trading currency pairs such as the USD/JPY might benefit from knowing about how the greenback can potentially be affected by the money supply and also QE.
Michael Woolfolk, who works as a global-markets strategist at Bank of New York Mellon, told Bloomberg how the recent decisions made by both the BOJ and the Fed could impact the currencies of the two nations.
"The Federal Open Market Committee minutes yesterday have opened the door for December tapering again, and you're seeing some dollar support," Woolfolk told the media outlet. "On the other hand in Japan, there seems no end in sight for their monetary easing."
BOJ has maintained current stimulus for months
The market expert's statement about the BOJ keeping its stimulus unchanged for some time is certainly not unwarranted, as the financial institution has kept this policy static for nine meetings since April, according to The Financial Times.
In addition, Haruhiko Kuroda, who is the governor of the BOJ, emphasized that the financial institution could potentially increase its current stimulus, the media outlet reported. The central bank "has room to act against upside and downside risks," he told the news source.
Another factor that could serve to push the value of the USD/JPY higher is the difference between the yields of the nation's government bonds, according to Bloomberg. On Nov. 20, the difference between the yields in 10-year U.S. Treasuries and similar securities provided by the government of Japan surged to 2.19. This figure represented the largest difference since Sept. 12.
"The yield differential is a key driver of dollar-yen," Brian Daingerfield, who works for Royal Bank of Scotland Group Plc's RBS Securities unit in Stamford, Conn.ecticut, told the media outlet. "The dollar, reacting positively towards the possibility of an earlier taper and yields moving higher, are pushing dollar-yen higher."
Individuals who want to trade forex might benefit from knowing about the role that the yield differential plays in the value of the USD/JPY.
The post Recent surge in USD/JPY illustrates importance of central bank stimulus appeared first on | HY Markets Official blog.
Article provided by HY Markets Forex Blog
