The Japanese Yen Bulls are awakening again
A shift back into the Japanese Yen has been evident across the board as trading gets well underway for the new week. Foundations were laid technically with a number of the JPY pairs, given the respective weekly candle closures. Following a complete battering for the safe-haven for many months, recovery is now being sought.
As a recap, the heavy selling of JPY had commenced back in April 2020, which had been the case given the improved global outlook, following the initial impact of the pandemic. Data had been showing encouraging signs, economies were easing some restrictions, there was optimism around the vaccines at the time. Selling pressure further intensified from November 2020 onwards, with the focus around President Biden and his huge stimulus plan, which was great for the risk appetite theme.
Given all the above noted, moves in the market in favour of JPY weakness at the time were very much one-directional, a technical correction is needed. Markets are typically subject to being overbought or sold whatever the case may be and simply players cashing out and taking profits.
A fundamental shift in favour of JPY
The Bank of Japan last week announced their interest rate decision, where they detailed their easing away from huge monetary stimulus. It has scrapped its pledge to buy an average of ¥6tn a year in equities as they look to ease away from the aggressive monetary stimulus in favour of a more “sustainable” policy.
They will be continuing to buy equities up to a maximum of ¥12tn ($110bn) a year. However, under its new policy, the BOJ will be intervening whenever the market falls, as opposed to steadily increasing its holdings as a way to spur investment and stimulate economic activity.
The move is certainly less dovish from them, which is another supportive factor for a JPY recovery across the board.
Technical observations
As per the technical video breakdown, there are several JPY pairs that have seen potential evening/shooting star candlestick formations. These typically via the textbook are possible signs of a trend reversal, the current weekly closures will be key to see if bears can produce that confirmation.