4 Reasons Why BoJ Hasn’t Intervened in USDJPY

Intervention Japanese Yen Kathy Lien

We have now seen the dollar fall approximately 600 pips against the Japanese Yen in just over week.  Alarms should be ringing at the Ministry of Finance and Bank of Japan because the 5% appreciation spells big trouble for Japan’s businesses and economy. However, everything that we have heard from the Japanese government so far suggests that they are not ready to intervene in the foreign exchange market to lower the value of their currency. The last time the Bank of Japan intervened in the currency was in 2011 after the earthquake and tsunami (and that was coordinated). Since then we have seen USDJPY fall as low as 76 and average around 102.25 over the past 4 years. So Japan has and can tolerate a stronger yen although they have less flexibility with monetary and fiscal policy because extensive action has already been taken through these years.

While we believe the Japanese government should intervene given the weakness of the currency, there are a number of reasons why they won’t:

  1. They could be waiting for the G7 meeting
  2. They could be waiting for fresh fiscal stimulus
  3. They could be waiting for the markets to capitulate first.
  4. They could also be looking into monetary stimulus rather than direct intervention to avoid being singled out for competitive devaluation of their currency at the G7 meeting in late May – because the host never wants to be embarrassed.

On a fundamental basis, it is becoming clear that the BoJ could allow USD/JPY to fall to 105 and maybe even 100 before taking action. In early February they let USD/JPY fall close to 1100 pips before there was also indication of intervention. While it has not been confirmed on February 11th, after dropping to a low of 110.98, USD/JPY jumped 200 pips in 20 minutes — price action that is indicative of intervention. USD/JPY still has 500 pips to go before this capitulation point, which would put the pair right between the 100 and 105 level. However we would be surprised if the BoJ let USD/JPY fall 1000 pips from its March 29th high of 113.80 without checking rates near 105.

On a technical basis, there’s no support in USD/JPY until 106.63, the 38.2% Fibonacci retracement of the 2011 to 2015 rally. We expect USD/JPY to test and bounce off this level. However if the Fib is broken then it should be smooth sailing down to 105.85, the 200-month SMA. So while the Bank of Japan could allow USD/JPY to drop 1000 pips from its recent high, there are enough key technical and psychological support levels between now and then to make it a choppy and not one-way move.


Top 5 12.30.13 – 12.31.13

*Top 5 Archive Members Only Top 5


DATE: Monday Dec 30, 2013

Guidelines for Top 5 Trading:
Proactive –
Enter trade 20 minutes before data, 25 pip stop, 25 pip first target
Reactive – Enter trade 5 minutes after data release, 20 pip stop, 15 pip target

**Holiday Alert: Due to lack of data, we are publishing an abridged version of the Top 5

DATE: Monday Dec 30, 2013

1. GBP/USD – Hometrack Housing Survey

Hometrack Housing Survey expected @ (7:01 PM ET / 0:01 GMT)
Our View – Neutral
Reason – Neutral
If Housing Survey index exceeds 0.8% = Buy GBP/USD
If Housing Survey is -0.1% or less = Sell GBP/USD

With many FX traders still off for the holiday, we don’t expect the Hometrack housing survey to have a significant impact on the GBP unless there is a big surprise. Therefore this report should only traded reactively and only if it exceeds our parameters. So if the housing survey rises by 0.8% or more, the GBP/USD can be bought for a quick move higher. However if it drops by 0.1% or more, showing renewed weakness in the housing market, the GBP/USD can be sold for an extension lower. REACTIVE TRADE


Normally, Friday’s ugly reversal candle would be sign of a potential turn in the GBP/USD. However the rally in sterling was driven by thin liquidity and as such, the reversal is likely a reversion to normal trading conditions. The best way to look at the price action of the GBP/USD is through the monthly chart because it shows how range bound the currency pair has been in recent years. The break of the 38.2% Fibonacci retracement opens the door for a stronger rally to the 2011 highs at 1.6746. If the currency pair moves lower, there is trendline support at 1.6350 and more significant support at 1.62.

2. EUR/USD – U.S. Pending Home Sales

Pending Home Sales expected @ 1% (10 AM ET / 15 GMT)
Our View – Neutral
Reason – Neutral
If Pending Home Sales rise by 0.3% or less = Buy EUR/USD
If Pending Home sales rise by 1.5% or more = Sell EUR/USD

Pending home sales is scheduled for release tomorrow and unfortunately U.S. housing market data has been mixed. Therefore we feel that the report is best traded reactively. If Pending home sales grow by 0.3% or less, the EUR/USD can be bought for a move higher. If Pending home sales rise by 1.5% or more, EUR/USD can be sold. REACTIVE TRADE


On Friday, the EUR/USD rose to a 2 year high just shy of 1.39. Unfortunately the pair failed to hold onto those gains and instead reversed sharply to end the day up only marginally. The 61.8% Fibonacci retracement of the 2011 to 2012 sell-off at 1.3835 continues to cap gains in the pair. There is near term support at 1.3700, where the 10 and 20-day SMA converge but more significant support for EUR/USD is down at 1.3630, where the 50-day SMA and second standard deviation Bollinger Band meet.

DATE: Tuesday Dec 31, 2013

1. USD/JPY – Chicago PMI Index

Chicago PMI expected @ 60.8 (9:45 AM ET / 14:45 GMT)
Our View – Bullish USD
Reason – Stronger Empire and Philly Fed
If Chicago PMI exceeds 65 = Buy USD/JPY
If Chicago PMI is less than 60 = Sell USD/JPY

The Chicago PMI report is scheduled for release and given the slight rise in the Empire State and Philly Fed surveys, we expect a stronger release. As such we feel that this data can be traded proactively or reactively. If the Chicago PMI index exceeds 65, USD/JPY can be bought for a move higher. If the index drops to 60 or lower, USD/JPY can be sold. PROACTIVE or REACTIVE TRADE


USD/JPY broke above 105 on Friday but the key resistance level is 105.70, the 61.8% Fibonacci retracement of the 2007 to 2011 sell-off. If this level is broken there is no major resistance until the 200-month SMA (shown in the chart above) at 107.30. The currency pair is in a strong uptrend but should the rally lose momentum, there is near support at 104 and more significant support down at the December lows of 101.60.