USD/JPY – Little Change as BoJ Welcomes New Governor

USD/JPY is showing little change in Tuesday trading. The markets are monitoring the changing of the guard at the Bank of Japan, as incoming governor Haruhiko Kuroda replaces Masaaki Shirakawa on Tuesday. In economic news, there are no Japanese releases on Tuesday. The markets will  be monitoring today’s US releases, both of which are important housing indicators – Building Permits and Housing Starts.

The powerful BOJ is replacing governors, and the move is sure to have significant ramifications for the Japanese economy and currency. Haruhiko Kuroda, the incoming governor, is a strong proponent of monetary easing, and has been called a “dream choice” for Prime Minister Shinzo Abe, who wants to see further monetary easing in order to eliminate deflation and increase government spending. Abe has been a sharp critic of Shirakawa, who did not favor aggressive monetary easing. Kuroda has set a goal of 2% inflation within two years, and is expected to introduce additional easing, which will likely weaken the yen. The Japanese currency has already lost 20% against the US dollar, which has been a boon for Japanese exports. Although economic indicators continue to point to deflation in the economy, GDP was up slightly in Q4 of 2012, raising hopes that the government’s aggressive easing policy is starting to pay dividends.

The island country of Cyprus is usually not the focus of the financial markets, but what was supposed to be a relatively small bailout for a struggling Eurozone member has sent the markets spinning. Over the weekend, a bailout agreement was reached over the weekend between the EU, IMF and the Cypriot government in the amount of 10 billion euros. However, a controversial provision in the agreement has threatened to derail the bailout. Under the terms of the bailout package, deposit holders in Cypriot banks would be levied with a one-time tax, between 6.7% and 9.9%, depending on the size of the deposit. This tax is intended to raise 5.8 billion euros, covering more than half of the 10 billion euro bailout. Taxing bank deposit holders is an unusual step, and the markets fear that it could result in depositors in other Eurozone countries with high debts transferring their funds to countries such as Germany. Cypriots were understandably fuming, as this marked the first time in the Eurozone debt crisis that bank depositors were being asked to take a haircut as part of a bailout. The Cypriot parliament was scheduled to meet in an emergency session on Tuesday to vote on the bank deposit levy and the bailout, but the drama continues, as the vote has been postponed.

The powerful BOJ is replacing governors, and the move is sure to have significant ramifications for the Japanese economy and currency. Haruhiko Kuroda, the incoming governor, is a strong proponent of monetary easing, and has been called a “dream choice” for Prime Minister Shinzo Abe, who wants to see further monetary easing in order to eliminate deflation and increase government spending. Abe has been a sharp critic of Shirakawa, who did not favor aggressive monetary easing. Kuroda has set a goal of 2% inflation within two years, and is expected to introduce additional easing, which will likely weaken the yen. The Japanese currency has already lost 20% against the US dollar, which has been a boon for Japanese exports. Although economic indicators continue to point to deflation in the economy, GDP was up slightly in Q4 of 2012, raising hopes that the government’s aggressive easing policy is starting to pay dividends.

In the US, the Federal Reserve meets for a policy meeting on Wednesday. The markets are watching to see if the Fed continues the current round of QE. With the US recovery looking stronger and unemployment nudging lower, there has been speculation that the Fed might wind down or modify its asset purchasing program. However, Fed head Bernard Bernanke and other senior officials have insisted that QE will continue. If the Fed surprises the markets, we can expect some volatility from USD/JPY.

USD/JPY for Tuesday, March 19, 2013

USD/JPY 95.45 H: 95.49 L: 95.22

USD/JPY is fairly quiet in Tuesday trading, as the pair trades in the mid-95 range. The pair is facing resistance at the 96.02 line. This is followed by stronger resistance at 97.24. On the downside, 95.27 is providing support. This line was breached earlier today, and could again be tested if the yen improves. The next support level is at 94.59.

• Current range: 95.27 to 96.02

Further levels in both directions:

• Below: 95.27, 94.59, 93.14, 92.53 and 91.48
• Above: 96.02, 97.24, 98.45, 99.38 and 99.98

OANDA’s Open Position Ratios

USD/JPY ratio has changed direction from Monday, and is currently pointing to movement towards short positions. The yen did post some modest gains earlier, reflecting the movement in the ratio. The ratio continues to be closely split between long and short positions, indicating that traders are split as to where the pair will head.

USD/JPY is fairly steady, but that could change as the BOJ changes governors, and all signs point to further monetary easing. With the US releasing major housing data later on Tuesday, we could see some increased movement from the pair.

USD/JPY Fundamentals

• 12:30 US Building Permits. Estimate 0.93M
• 12:30 US Housing Starts. Estimate 0.92M

*Key releases are highlighted in bold

*All release times are GMT

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