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How Will Yen Respond To More Stimulus?

 January 09, 2013 12:40 PM


Media is awash with talk about new economic stimulus in Japan. It seems the Japanese government is preparing a new supplementary budget, the largest in several years, ready to borrow as much as JPY 12 trillion. This would amount to about 2% of the nation's GDP, needed in an effort to boost the sagging economy. Officials call it a "flexible fiscal policy", which of course has additional aim of sparking inflation and more Yen depreciation.

It will be interesting how the Japanese currency responds to this round of spending. So far, the Yen is not weakening, in fact has been gaining in the last two past two days. All of the JPY currencies dropped well over 100 pips from their recent highs. One could argue that this is only a technical pullback, targeting the still open gaps from late December. At the same time, though, today's reports should have had some impact, especially if the markets are paying attention to fundamentals. We will find out the real impact once this new stimulus is officially approved.

[Related -Gold Slides On Perfect Storm For Dollar]

In the last post, I discussed couple of Canadian Dollar pairs and one of them happened to be the CAD-JPY. After a long wait, it finally developed a topping pattern on the hourly chart. I moved the sell order to just under the new support of 88.69, to 88.67 to be exact. My objective for this trade was 88.00, as this level offers the next potentially strong support. It was reached almost to the pip, making for a nice trade.

[Related -Forward Guidance Now A Nightmare For Fed.]

Mike K.

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