- Published: 30 December 2013
- Written by Editor
The interest rate outlook differential in the money markets between US and Japan is still looking containing the relationship between the greenback and the Japanese yen to lead it to be traded currently over the 105 psychological level after the rising of UST 10YR yield over 3% again last week reaching 3.02% surpassing the year previous high at 3.01% which has been recorded ahead of last Sep meeting of the Fed when the speculations of tapering rose significantly while the counterpart JGB for 10 year yield is still running around 0.7%.
The discrepancy between the monetary policies in US and Japan has shown to the market that the yield differential can go wider after the Fed’s decision this month to lower its monthly MBS buying by $5b and also Treasuries buying by $5b on improving of the US economic performance made the US labor market conditions better to have 2 consecutive non-farm payrolls figures above 200k and falling of the unemployment rate to 7% which is the lowest level since November 2008.
However both of the Fed and BOJ can be considered QE dependent not interest rate dependent as the Fed’s QE is still working and the pace of tapering it seems to the market to go in a gradual pace next year.
On this issue, we have had recently from the Fed’s Governor of Dallas Richard Fisher’ comments about his thoughts have shown that he sees importance of getting back to having the interest rate as a determiner of the monetary policy. Fisher who will be a FOMC voter next year has mentioned last week that he argued cutting by $20b.
We have had also previously another comment concerning this issue which can contain the market sentiment next year from the Federal Reserve of St. Louis James Bullard who is a voter on the monetary policy this year when he said that cutting the monthly scale of buying from 15B to 20B can be equivalent of the impact of hiking the interest rate by 0.25%.
From the other side and despite its success in driving The National Consumer Price Index from -0.9% in last march to 1.5% in November, BOJ is still looking tied to its monetary base widening pace from Yen60tr to Yen70tr yearly till the end of 2014 as it has planned and announced this year with Krouda leadership buying more than Yen7tr of JGB monthly for ending the persisting deflation which continued for about 15 years.
The Japanese Finance minister Aso has mentioned also recently that having another stimulating package is not ruled out and referred to the recent Japanese deterioration saying that it is not always positive to the economy which depends on exporting as it is depending also currently on importing oil for producing energy and the weak yen drives the cost of importing higher affecting negatively on the Japanese trade balance since March 2011 Earthquake while the Japanese yen is suffering from the abenomics policies in Japan which has grown in the third quarter by 1.1% yearly while the market was waiting for 1.6% from 1.9% in Q2 suggesting that there is still a probability of further widening of BOJ’s Monetary base special, if the efforts for sustaining the financial situation of the Japanese government by imposing higher sales taxes next year tackled the economic growth pace.
USDJPY which could continue creeping up trading currently over 105 psychological level after it had started trading following Christmas on up gap can meet in the case of rising further other resisting levels at 107.16, 108.02, 109.18 which can be followed by 110 before its formed top on 10th of August 2008 at 110.66 while going down from here can be met by supporting level at 104.62 which capped the pair from filling last week gap and it can be followed by 103.74 which is the lowest level since the Fed’s tapering decision before meeting other supporting levels has been formed at higher bottoms in its ascending way to this current highest rate in the last 5 years at 102.49, 102.14, 101.61, 101.12 before the psychological level at 100 which can be followed by other supporting levels at 99.55, 99.08, 97.61 before its higher bottom at 96.55 which came over its previous bottom at 95.71
Kind Regards
FX Market Strategist
Walid Salah El Din
Mob: +20 12 2465 9143
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