BoJ Stimulus and Helicopter Money: USD/JPY Beware | Vantage FX

BoJ Stimulus and Helicopter Money: USD/JPY Beware

July 13, 2016

USD/JPY rallied just over 2% as some of the key JPY crosses that we follow saw rallies of 3% or more. All coming on the back of simply the prospect of new stimulus from Japan, switching Forex markets to risk-on.

Japanese Prime Minister Shinzo Abe was returned to power in Sunday’s election, emerging with the supermajority required to forge ahead with Abenomics and as we discussed in Monday’s blog, even opens up the possibility of major post WW2 constitutional reform.

USD/JPY started the week close to its lows and testing a majorly significant higher time frame support/resistance level. From here, we’ve seen rumours of stimulus turn to confirmation of stimulus turn to… HELECOPTER MONEY!

Yes, helicopter money is a real thing:

“Involves the central bank making direct transfers to the private sector financed with base money, without the direct involvement of fiscal authorities.”

Think of it as central bank funded fiscal policy that doesn’t take the time that regular economic stimulus takes to seep down into the real economy. This is instantly handing cash payments to households who are encouraged to spend and pump the money back into the economy immediately.

The absolute last resort when nothing else is working. Just think about that for a second.

I yesterday expressed some concerns about what the market is pricing in and what is actually happening:

While rumours of the nitty gritty discussions between Abe and Bernanke continued to hit the newswires, traders continued to buy USD/JPY. This buying/post-Brexit short covering meant that price didn’t even pause for a second at the highlighted intra-day level.

USD/JPY 4 Hour:
Click on chart to see a larger view.

But the point still stands. We now have a majorly expectant market, running with an intra-day parabolic move to the upside, on what? Expectations, threats and rumours of an absolute last resort measure. Yikes.

Part of your analysis, technical or fundamental, should always be asking on which side of the market lies the greatest risk of a re-pricing. There is one argument making a case for that being the downside.

Bonus Charts:
GBP/JPY Daily:
Click on chart to see a larger view.

AUD/JPY Daily:
Click on chart to see a larger view.

Taking a quick look at the crosses and you can see both GBP/JPY and AUD/JPY are coming into higher time frame resistance, all helping to build a case.

Head over to the @VantageFX Twitter account using the social links above and let us know your thoughts on trading JPY.

Dane Williams – @VantageFX

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